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FREE  TRADE,  THE  TARIFF 
AND  RECIPROCITY 


BOOKS  BY  THE  SAME  AUTHOR 

Principles  of  Economics,  Second  edition,  1915 

Inventors  and  Moneymakers,   1915 

The  Tariff  History  of  the  United  States, 
Sixth  edition,  1914 

Some  Aspects  of  the  Tariff  Question,  Second 
edition,  1917 

The  Silver  Situation  in  the  United  States, 
Third  edition,  1898 

Wages  and  Capital,  1896 


FREE  TRADE,  THE  TARIFF 
AND  RECIPROCITY 


BY 
F.  W.  TAUSSIG,  Ph.D.,  Litt.D. 

Henry  Lee  Professor  of  Economics  in  Harvard  University: 

Sometime  Chairman  of  the  United  States 

Tariff  Commission 


I13eto  gotb 

THE  MACMILLAN  COMPANY 
1927 

AU  rights  reserved; 


H  F/7  5-c 

T3Lr 


Copyright,  1920, 
By   the    MACMILLAN   COMPANY. 


Set  up  and  electrotyped.     Published  January,  1920.     Reissued 
September,  1927. 


/^epldcihq  ^)C^SS 


PRINTEP   IN  THE   UNITED   STATES   OF   AMERICA 
py   BERWICK   &   SMITH   CO. 


PREFACE 

The  papers  gathered  in  this  volume  have  been  pubh'shed  at 
intervals  over  a  considerable  period,  and  have  been  addressed 
to  different  audiences.  Nevertheless  they  have  a  unity  of 
purpose  and  plan  v^^hich  will  serve,  I  trust,  to  justify  their 
appearance  in  the  present  form.  They  cover  the  arguments 
commonly  heard  in  the  tariff  controversy  and  more  especially 
those  urged  in  the  course  of  recent  debates  in  the  United 
States.  Most  of  them  are  addressed  to  the  general  public, 
and  assume  on  the  reader's  part  no  special  training  in  eco- 
nomics. All  have  now  been  revised  with  a  view  to  con- 
nected and  consistent  presentation. 

One  topic  of  importance  and  of  general  interest  is  touched 
but  briefly  —  the  doctrine  of  protection  to  young  indus- 
tries. I  have  considered  this  topic  in  another  book,  ''  Some 
Aspects  of  the  Tariff  Question,"  with  so  much  detail  that  it 
could  here  not  be  taken  up  otherwise  than  summarily  without 
repeating  in  so  many  words  what  had  already  been  said. 
The  reader  who  may  be  interested  is  referred  to  the  earlier 
look,  in  which  are  given  the  results  of  detailed  investiga- 
tions bearing  on  several  questions  of  principle,  among  them 
the  validity  of  the  argument  for  protection  to  young  indus- 
tries. With  this  exception  the  present  volume  may  be  fairly 
said  to  cover,  if  not  the  whole  of  the  tariff  controversy,  those 
phases  of  it  which  now  are  chiefly  under  discussion  in  the 
United  States. 


954947 


CONTENTS 


PAGE 


[    The  Present  Position  of  the  Doctrine  of  Free 

Trade 1 

The  doctrine  of  free  trade  apparently  triumphant  in  1870. — 
Subsequent  reaction.—  Tenacious  hold  of  ancient  fallacies. 
—  Protection  and  wages. —  Dumping. —  Agricultural  compe- 
tition and  political  problems. —  Protection  to  young  in- 
dustries.—  The  causes  of  economic  progress. —  England, 
Germany,  the  United  States. —  Intensification  of  national 
feeling. —  Attitude   of  economists. —  Conclusion. 


II     Abraham  Lincoln  on  the  Tariff  :  a  Myth    .      .     34 

"  Keeping  the  goods  and  the  money  " :  a  myth. —  A  sequel. — 
Epilog. 


Ill    How  the  Tariff  Affects  Wages 48 

Widespread  belief  in  the  United  States  that  the  tariff  raises 
wages. —  Familiar  facts  inconsistent  with  the  belief. —  The 
volume  and  variety  of  our  exports. —  Great  Britain  not  under- 
sold by  British  India. —  Trade  relations  between  Great  Britain 
and  Germany. —  Does  the  Tariff,  though  not  the  cause  of  high 
wages,  serve  to  keep  them  up  ?  —  It  does  in  those  competitive 
industries  in  which  effectiveness  is  not  high. —  Results  to  be 
expected  from  abolition  of  duties. —  Improbability  of  any 
abrupt  change. —  Cases  of  labor  monopoly. —  Causes  of  the 
general  and  dominant  productiveness  of  American  industry. — 
"  Efficiency  "  and  ''  effectiveness  "  in  manufacturing  indus- 
tries.—  Significance  of  low  wages  in  certain  manufacturing 
industries. —  Conclusion. 


IV    Wages  and  Prices  in  Relation  to  International 

Trade 70 

Wages  and  other  money  incomes,  not  prices,  the  important 
thing. —  High  wages  consistent  Avith  low  prices  where  there 
is  effectiveness  of  labor. —  "  Domestic  commodities  "  not  neces- 
sarily high  in  price  in  countries  where  money  wages  are  high. 

vii 


viii  Contents 

PAGE 

—  Illustrations  from  the  United  States. —  High  money  wages 
the  result  of  eflfectiveness  of  labor  in  exporting  industries. — 
In  what  sense  high  prices  are  advantageous  to  a  country. — 
Low  wages  in  a  non-competing  group  have  the  same  effect  as 
would  high  effectiveness  of  labor  in  that  group. —  Conclusion. 

V     How  TO  Promote  Foreign  Trade 95 

Bitterness  of  trade  rivalry. —  Foreign  trade  enriches  a  country 
not  by  bringing  in  money,  but  through  the  exchange  of  ex- 
ports for  imports. —  Ihe  mechanism  of  international  trade 
and  the  effects  on  it  of  the  war. —  The  fundamental  factor  for 
promoting  exports  is  the  effectiveness  of  labor  and  capital. 

—  Four  devices  for  promoting  export  trade,  ( 1 )  export 
bounties,  (2)  special  transportation  rates  for  export  busi- 
ness, (3)  special  prices  by  producers  on  export  sales,  (4)  con- 
cessions in  rates  of  duty  secured  from  foreign  countries. — 
Attitude  of  the  United  States  in  international  trade  and  inter- 
national politics. —  The  open  door. 

VI    Eeciprocitt 120 

Effects  of  different  forms  of  reciprocity. —  Limited  remissions 
or  reductions  of  duty. —  Hawaiian  sugar. —  European  reci- 
procity arrangements  after  1860. —  Another  method,  as  in  the 
McKinley  tariff  act  of  1890:  imposition  of  special  duties. — 
Effects  in  the  United  States  and  in  foreign  countries. — 
Conclusion. 


VII     Cost  of  Production  and  the  Tariff  ....  134 

The  plan  of  basing  tariff  rates  on  differences  in  cost  of  pro- 
duction.—  Worthless    as    a    solution    of    the    tariff    question. 

—  Consistently  applied,  it  means  not  moderate  duties,  but 
universal  and  unlimited  protection. —  Difference  between  the 
free-trader's  point  of  view  and  the  protectionist's. —  Effective- 
ness of  labor  in  relation  to  proposed  equalization  of  cost. — 
Cost  inquiries  nevertheless  desirable. —  Dependency  of  manu- 
facturing industries  on  protection  exaggerated. —  Dependence 
of  universal  prosperity  on  the  tariff  even  more  exaggerated. 

VIII    An  Inquiry  on  the  Costs  of  Wool  and  Woolens  149 

Report  of  the  Tariff  Board  of  1910  on  wool  and  woolens. — 
How  costs  of  wool  were  calculated. —  Conclusions  on  the 
expediency  of  a  duty  on  raw  wool. —  Costs  of  woolen  goods. 

—  Light  on  the  compensating  system. —  The  question  of 
principle. 


Contents  ix 

PAOX 

IX    How  Tariffs  Should  not  be  Made      ....  163 

"Jokers"  in  the  tariff  act  of  1909. —  Structural  steel. — 
Cotton  gloves. —  Nippers  and  pliers. —  Razors. —  Need  of  im- 
partial investigation. 


X     The  Proposal  for  a  Tariff  Commission  .     .     .180 

No  tariff  commission  can  settle  policies. —  No  scientific  solu- 
tion.—  A  tariff  commission  nevertheless  can  do  good. —  Evils 
of  traditional  methods. —  What  kind  of  commission  is  desir- 
able.—  Advantages  and  disadvantages  of  a  permanent  com- 
mission.—  Non-partisan  investigation  needed  in  any  case. 


XI     Tariff  Problems  After  the  War 194 

Three  classes  of  articles:  military,  essential,  non-essential. — 
( 1 )  Military  articles ;  the  choice  between  tariff  duties  and 
other  methods. —  Special  situation  of  the  coal  tar  and  dye- 
stuffs  industries. —  (2)  Essential  articles;  potash  as  an  ex- 
ample.—  (3)  Non-essential  articles;  the  tariff  controversy 
pure  and  simple. —  Various  shades  of  opinion. —  What  a  tariff 
commission  can  accomplish. 


FREE  TRADE,  THE  TARIFF  AND 
RECIPROCITY 


THE  PRESEN^T  POSITIOI^  OF  THE  DOCTRINE 
^^^0,     OF  FREE  TRADE  ' 

Forty  years  ago,  the  doctrine  of  free  trade  seemed  to  be 
triumphant,  alike  in  the  judgments  of  thinkers  and  in  the 
policy  of  the  leading  countries.  The  school  of  Adam  Smith 
and  Ricardo  had  swept  the  board  in  Great  Britain,  and  its 
conclusions,  as  set  forth  in  John  Stuart  Mill's  ''  Principles,'^ 
were  thought  to  represent  the  definitive  outcome  of  economic 
inquiry.  Among  these  conclusions,  the  one  least  open  to 
doubt  seemed  to  be  that,  between  nations  as  between  individ- 
uals, free  exchange  brought  about  the  best  adjustment  of  the 
forces  of  production;  and  international  free  trade  was  re- 
garded as  the  one  most  potent  means  of  increasing  the  effi- 
ciency of  labor.  In  legislation,  the  triumph  seemed  to  be  no 
less  assured.  England,  after  a  series  of  moves  in  the  direction 
of  lower  duties,  had  at  last  taken  the  sudden  plunge  to  free 
trade  in  the  dramatic  repeal  of  the  com  laws  in  1846.  Xot 
long  after,  France,  by  the  commercial  treaty  of  1860  with 
England,  had  replaced  the  old  regime  of  rigid  protection  and 
prohibition  by  a  system  of  duties  so  moderate  that  the  free 
trader  might  feel  that  his  ideal,  if  not  quite  attained,  yet 
could  not  be  long  delayed  in  complete  realization.  The  treaty 
between  France  and  England  was  soon  followed  by  others  of 

1  Presidential   Address    before    the   American    Economic    Association, 
December,  1904. 

1 


2  Free  Trade,  the  Tarijf  and  Be  Cipro  city 

similar  import  between  the  various  countries  of  Europe, 
spreading  over  all  the  Continent  a  network  of  reciprocal 
arrangements  that  greatly  lowered  the  tariff  barriers  in  the 
civilized  world.  In  the  United  States  a  long  period,  from 
1846  to  1861,  had  witnessed  a  marked  relaxation  of  the  pro- 
tective system ;  and  if  the  Civil  War  had  brought  a  return  to 
high  duties,  this  might  be  ascribed  to  the  financial  exigencies 
of  that  crisis,  and  might  reasonably  be  expected  before  long 
to  give  way  once  more  to  a  moderate  policy. 

How  different  since  then  has  been  the  course  of  events  from 
what  was  confidently  expected  by  the  economists  of  1860 ! 
Slowly  but  steadily  the  current  has  been  reversed,  and  coun- 
try after  country  has  joined  the  protectionist  ranks.  The 
United  States,  so  far  from  relaxing  the  high  duties  imposed 
during  the  civil  war,  has  strengthened  them  and  enlarged 
their  range,  and  gradually  built  up  a  protective  system  the 
like  of  which  was  not  dreamed  of  in  earlier  days.  France, 
restive  under  the  treaty  regime  of  low  duties,  finally  put  an 
end  to  it  in  1881,  and  then  proceeded  to  build  up  once  more 
a  system  of  high  protection.  Germany  took  her  decisive  step 
in  the  same  direction  in  1879,  and  thereafter  proceeded 
steadily  to  enlarge  and  elaborate  her  tariff  barriers.  Aus- 
tria and  Italy  followed  suit,  and  Russia  has  gone  to  the  ex- 
treme in  adopting  protection.  Even  the  old  strongholds  of 
free  trade  have  become  difficult  to  hold.  Holland's  latest 
tariff,  while  still  disavowing  deliberate  protection,  yet  levies 
duties  which,  if  ostensibly  for  financial  yield,  are  inconsistent 
with  a  strict  adherence  to  free  trade.  The  leading  English 
colonies,  Canada  and  Australia,  have  ostentatiously  aban- 
doned that  principle.  England  herself  is  in  the  throes  of  a 
discussion  in  which  her  policy  of  freedom,  supposed  to  have 
been  settled  once  for  all,  is  attacked  with  vigor  and  effect; 
and  who  shall  say  what  is  to  be  the  outcome  of  that  discus- 
sion? 

Not  less  striking  is  the  change  in  temper  among  economic 


The  Present  Position  of  the  Doctrine  of  Free  Trade     3 

thinkers.  The  whole  structure  of  economic  theory  is  under- 
going revision.  Many  of  the  doctrines  of  Adam  Smith  and 
Kicardo  have  no  more  than  an  historic  interest.  It  still  re- 
mains to  be  seen,  as  this  larger  discussion  goes  on,  just  what 
the  outcome  will  be  in  the  reconstruction  of  economic  teach- 
ing as  a  whole ;  but  it  is  clear  that,  so  far  as  the  doctrine  of 
free  trade  is  concerned,  enthusiasm  has  been  supplanted  by 
cautious  weighing  or  open  doubt.  Half  a  century  ago  those 
German  and  French  writers  who  advocated  free  trade  were 
certain  that  the  future  was  theirs :  protection  was  the  waning 
doctrine,  and  its  advocates  were  hopelessly  reactionary.  At 
present,  certainly  in  Germany  and  more  or  less  in  other  coun- 
tries, a  large  school  has  just  the  opposite  feeling.  Free 
trade  would  seem  to  be  the  waning  doctrine.  Laissez- 
faire  and  freedom  have  had  their  day,  and  the  future  belongs 
to  the  conscious  direction  of  industry  at  the  hands  of  the  state. 
International  free  trade  has  no  more  sanctity  or  authority 
than  any  other  part  of  the  obsolete  system  of  natural  liberty, 
and  the  advantages  or  disadvantages  of  tariff  restrictions  are 
to  be  coolly  w^eighed  for  each  country  by  itself,  in  the  light  of 
specific  experience. 

In  view  of  this  unmistakable  change  in  the  general  atti- 
tude, even  the  most  convinced  free-trader  must  feel  called 
on  to  reconsider  the  question,  and  weigh  once  more  the  arsru- 
ments  for  protection.  Some  such  task  I  propose  for  myself : 
not  indeed  the  formidable  one  of  going  over  the  entire  subject 
afresh,  but  that  of  passing  in  review  some  of  the  arguments 
most  commonly  heard,  and  more  especially  those  of  which 
most  is  heard  in  our  own  country. 

First  of  all,  something  may  be  said  on  those  aspects  of  the 
controversy  of  which  most  is  heard  in  popular  discussion  in 
this  country.  Here,  as  it  happens,  the  situation  is  compara- 
tively simple;  for  there  is  perhaps  a  nearer  approach  to  a 
consensus  of  opinion  on  current  popular  arguments  regard- 
ing protection  than  on  any  other  subject  in  the  wide  field  of 


4  Free  Trade,  the  Tariff  and  Reciprocity 

economics.  As  to  most  of  the  familiar  arguments  for  protec- 
tion, either  all  the  economists  are  hopelessly  in  the  wrong,  or 
else  the  protectionist  reasoning  is  hopelessly  bad. 

The  mercantile  view  of  international  trade,  exploded 
though  it  has  been  time  and  again,  has  a  singularly  tenacious 
hold.  Even  among  the  most  intelligent  writers  in  financial 
journals  the  familiar  attitude  is  that  of  rejoicing  in  a  gain  of 
exports,  regretting  a  gain  of  imports:  rejoicing  in  an  inflow 
of  specie,  bewailing  its  outflow ;  so  familiar  that  probably  the 
immense  majority  of  persons  who  have  never  .een  syste- 
matically trained  in  economics  take  this  point  of  view^as  a 
matter  of  course.  E'ow,  in  a  country  whose  monetary  sys- 
tem is  top-heavy,  the  relation  of  imports  to  exports  may  not 
automatically  adjust  itself  without  causing  trouble.  But  the 
difficulty  in  such  case,  if  there  be  one,  is  in  the  circulating 
medium,  and  it  presents  questions  of  monetary  reform,  not 
any  problem  as  to  the  gain  or  loss  from  international  trade. 
~^o  doubt  there  are  some  other  problems  of  real  complexity 
in  the  relation  of  exports  and  imports.  A  country  whose  ex- 
ports grow  rapidly  and  are  readily  absorbed  by  foreign 
countries,  may  thereby  secure  its  imports  on  more  advan- 
tageous terms.  This  has  probably  been  the  situation  of  the 
United  States,  especially  during  the  last  thirty  years.  On 
the  other  hand,  a  country  which  depends  on  international 
trade  for  obtaining  commodities  essential  for  its  economic 
well-being  and  not  procurable  at  home,  must  look  to  its  ex- 
ports as  the  means  whereby  these  essentials  shall  be  secured ; 
and  such  a  country  must  have  a  watchful  eye  on  the  con- 
tinuance and  growth  of  its  exports.  This  has  doubtless  been 
the  situation  of  England  during  the  last  thirty  years.  But 
these  are  aspects  of  the  theory  of  international  trade  quite 
beyond  the  ken  of  those  who  expound  the  virtues  of  protec- 
tion to  the  general  public.  Here  the  exports  are  not  regarded 
as  the  means  of  buying  the  imports :  the  exports  are  good  in 


The  Present  Position  of  the  Doctrine  of  Free  Trade     5 

themselves,  the  imports  bad  in  themselves.     We  may  apply 
to  this  sort  of  talk  a  well-knowu  passage  of  Adam  Smith's : 

"  Some  of  the  best  English  writers  upon  commerce  set  out  with 
observing  that  the  wealth  of  a  country  consists,  not  in  its  gold 
and  silver  only,  but  in  its  lands,  houses,  and  consumable  goods  of 
all  sorts.  In  the  course  of  their  reasoning,  however,  the  lands, 
houses,  and  consumable  goods  seem  to  slip  out  of  their  memory; 
and  the  strain  of  their  argument  frequently  supposes  that  all 
wealth  consists  in  gold  and  silver,  and  that  to  multiply  these 
metals  is  the  great  object  of  national  industry  and  commerce." 

So  the  every-day  writers  on  foreign  trade  would  admit  at 
the  outset  that  its  only  object  is  the  same  as  that  of  all  labor 
and  trade:  to  increase  the  sum  of  enjoyable  commodities,  and 
to  do  so  by  getting  the  imports  we  consume,  not  by  selling 
the  exports  we  get  rid  of.  But  as  their  reasoning  proceeds, 
the  consumable  commodities  somehow  slip  out  of  their  mem- 
ory, and  all  their  talk  is  of  gaining  by  sales  and  of  losing  by 
purchase,  of  the  great  glories  of  swelling  exports,  and  the  ill 
omen  for  domestic  industry  of  growing  imports. 

Other  ancient  fallacies  have  a  no  less  tenacious  hold.  We 
hear  it  proclaimed  ad  nauseam  that  protected  industries  give 
the  farmer  a  home  market;  as  if  there  were  created  a  new 
and  additional  market,  and  not  a  mere  substitute  for  the 
foreign  market.  It  is  part  of  the  same  ancient  fallacy  that 
the  farmer's  '^  surplus  "  is  talked  of  as  if  it  must  be  so  much 
waste  unless  legislation  provides  a  market  for  it.  We  all 
know  how  Adam  Smith,  in  the  days  when  the  theory  of  in- 
ternational trade  was  in  the  making,  accepted  the  notion  of 
a  surplus;  we  all  know,  too,  how  easy  it  was  for  later  writers 
to  refute  Adam  Smith  out  of  his  own  mouth.  Again,  we 
are  constantly  told  that  a  tax  on  imports  acts  as  a  burden  on 
foreigners,  not  on  the  domestic  consumer;  though  here,  as 
in  other  parts  of  the  controversy,  the  proposition  is  more 
often  an  implied  premise  than  an  explicit  conclusion.     Xot 


6  Free  Trade,  the  Tariff  and  Reciprocity 

least,  how  incessant  is  the  blatant  assumption  that  all  pros- 
perity is  due  to  the  protective  system,  and  that  disaster  must 
ensue  from  any  mitigation  of  its  vigor.  With  some  of  these 
arguments,  a  nice  analysis  no  doubt  would  bring  into  view 
conditions  under  which  a  measure  of  plausibility,  nay  of  real 
validity,  attaches  to  them.  Thus  there  are  conditions  under 
which  taxes  on  commodities  are  borne  in  part,  occasionally 
even  in  whole,  by  the  producer  and  not  by  the  consumer. 
These  are  exceptional  conditions;  and  they  are  as  likely  to 
appear  under  internal  taxes  as  under  customs  duties.  But 
such  exceptions  and  qualifications,  found  for  every  social 
and  economic  principle  by  the  discriminating  thinker,  are 
not  among  the  subjects  of  every-day  debate.  There  we  find 
the  simplest  fundamental  principles  ignored,  and  the  bald- 
est errors  repeated.  It  is  inevitable,  in  the  popular  discus- 
sion of  economic  problems,  that  arguments  of  the  crudest  sort 
should  come  to  the  fore.  But  I  confess  to  a  sense  of  humilia- 
tion when  our  leading  statesmen  turn  to  reasoning  easy  of 
refutation  by  every  youth  who  has  had  decent  instruction  in 
elementary  economics. 

I  do  not  wish  to  linger  on  these  commonplaces ;  yet,  at  the 
risk  of  being  tedious,  will  turn  for  a  moment  to  that  phase 
of  the  controversy  which  for  near  half  a  century  has  been 
most  conspicuous  in  our  country  —  the  effect  of  protection 
on  wages.  For  years  and  years  it  has  been  dinned  into  the 
ears  of  the  American  people  that  high  wages  are  the  result 
of  protection,  or  at  least  dependent  on  protection;  that  the 
maintenance  of  a  high  standard  of  living  depends  on  the  bar- 
rier against  competing  laborers  of  lower  price,  and  that  the 
workingman  has  a  special  and  peculiar  interest  in  the  system 
of  high  duties.  And  yet  I  apprehend  that  here,  too,  the 
judgment  of  the  economists  would  be  with  virtual  unanimity 
the  other  way.  The  general  range  of  wages  in  the  United 
States  was  not  created  by  protection  and  is  not  dependent  on 
protection.     The  common  talk  about  the  sacredness  of  pro- 


The  Present  Position  of  tlie  Doctrine  of  Free  Trade      7 

tection  as  a  means  of  uplifting  the  workingman  is  mere  clap- 
trap. 

No  doubt  there  would  be  some  difference  in  the  way  in 
which  the  economists  stated  the  grounds  of  this  conclusion. 
The  theory  of  wages  is  one  of  their  debatable  fields,  and  some 
points  are  still  to  be  settled.  But  for  the  purposes  of  the 
present  discussion,  these  differences  would  not  be  material. 
It  would  be  agreed  by  all  hands  that  the  fundamental  cause  of 
high  wages  is  large  productiveness  of  labor,  and  that  so  long 
as  such  productiveness  exists  a  large  reward  to  workmen  will 
follow.  The  higher  range  of  wages  in  the  United  States  is 
due  to  the  country's  rich  natural  resources^  and  to  the  energy 
and  intelligence  with  which  these  have  been  utilized.  It 
may  be  that  in  certain  directions  the  utilization  of  its  re- 
sources has  in  some  degree  been  hastened  or  made  more  ef- 
fective by  protection  —  of  this  more  hereafter.  It  may  be 
that  in  other  directions  this  utilization  has  been  retarded  and 
lamed  by  protection.  But  in  either  case  it  is  beyond  doubt 
that,  whether  we  had  had  in  the  past  complete  free  trade  or 
the  most  unqualified  protection,  production  would  have  been 
more  generous  in  the  United  States  than  in  European  coun- 
tries, and  wages  higher ;  and  it  is  no  less  certain  that,  which- 
ever system  we  shall  have  in  the  future,  we  shall  retain  these 
same  advantageous  conditions. 

But  while  the  generally  higher  range  of  wages  in  the  United 
States  has  nothing  to  do  with  protection,  and  probably  not 
much  to  do  with  international  free  trade  either,  it  does  not 
follow  that  some  among  our  laborers  may  not  be  dependent 
on  the  tariff  barriers  for  their  present  wages  in  their  present 
occupations.  So  far  as  the  industries  in  which  they  are 
employed  are  really  dependent  on  protection,  the  high  wages 
paid  in  these  particular  cases  are  also  dependent  on  protec- 
tion. Looking  at  the  dominant  and  normal  conditions  of 
industry  in  this  country,  we  find  high  money  wages  and  at  the 
same  time  low  prices  of  goods.     Labor  is  efficient  and  goods 


8  Free  Trade^  the  Tariff  and  Reciprocity 

are  produced  abundantly;  therefore,  though  the  goods  are 
sold  at  low  prices,  the  gross  money  yield  is  large,  the  money 
returns  are  high,  and  high  money  wages  are  paid.  But  in 
those  industries  in  which  labor  is  less  efficient,  and  goods  are 
not  produced  in  abundance,  the  gross  money  yield  can  not 
be  high  unless  competing  products  are  kept  out  or  handi- 
capped. In  this  sense,  and  to  this  extent,  the  maintenance 
of  high  wages  in  some  industries  depends  on  the  maintenance 
of  protection. 

To  say  this  is  to  say  that  here,  as  in  all  cases  of  vested 
interests,  whether  of  labor  or  of  capital,  serious  problems 
present  themselves  to  the  legislator.  The  protectionists  nat- 
urally exaggerate  the  extent  to  which  industries  are  in  fact 
dependent  on  this  system,  and  indeed  go  to  the  absurd  ex- 
treme of  maintaining  that  all  successful  industry  and  all  high 
wages  depend  on  their  panacea.  The  free-traders  belittle  it, 
and  often  fail  to  see  that  in  so  doing  they  minimize  also  those 
consequences  of  protection  which  they  think  bad.  The  diver- 
sion of  labor  and  capital  to  less  productive  channels  —  the 
ill  effect  which  is  the  essence  of  the  free-trade  contention  — 
is  precisely  in  proportion  to  the  range  of  industries  in  which 
the  maintenance  of  high  wages  depends  on  protection.  No 
doubt  also  the  free-traders  do  not  squarely  face  the  difficulties 
of  a  transition  to  their  system :  the  slowness  with  which  capi- 
tal and  labor  would  have  to  be  withdrawn  from  protected 
industries,  and  the  prolonged  period  of  unsettlement  which 
would  have  to  be  undergone  before  final  readjustment. 

Before  leaving  this  part  of  the  controversy,  I  will  note 
one  other  aspect  of  it  • —  one  that  touches  our  pressing  social 
problems.  The  industries  in  which  labor  is  efficient,  output 
is  large,  and  wages  are  high,  are  by  no  means  solely  the  agri- 
cultural industries.  A  great  range  of  manufactures  are  of 
this  sort ;  and  these  are  our  most  characteristic  manufactures. 
They  are  the  manufactures  employing  workmen  who  are 
alert,  intelligent,  and  what  is  popularly  called  high-priced. 


The  Present  Position  of  the  Doctrine  of  Free  Trade      0 

They  are  the  manufactures  in  which  a  larger  output  per 
unit  of  lahor  and  capital  comes  from  ingenious  machinery, 
effecti»ve  organization,  efficient  labor,  nicely  adjusted  product. 
Side  by  side  with  these  are  others  of  a  different  type,  in 
which  the  laborer  is  called  on  chiefly  for  the  monotonous 
repetition  of  the  simplest  manual  tasks,  and  in  which  even 
an  ignorant  man,  or  woman,  or  even  child,  can  be  easily 
taught  the  task.  Here  the  temptation  is  inevitably  to  seek 
for  cheap  labor.  The  earth  has  been  scoured  to  find  docile, 
ignorant,  pliable  labor,  which  shall  do  for  us  our  Helot's 
tasks.  Inpouring  immigrants  by  the  million  find  work  of 
this  kind.  They  get  wages  which  are  lifted  by  the  surround- 
ing economic  forces  somewhat  above  the  level  of  similar 
wages  in  Europe,  but  by  no  means  up  to  the  full  American 
range.  They  are  in  a  class  by  themselves,  cut  off  in  large 
degree  from  the  general  influences  -of  the  country.  Their 
children,  indeed,  commonly  feel  these  influences.  They  go 
to  the  public  schools,  learn  the  American  standards  and  ways, 
and  struggle  with  more  or  less  success  to  rise  to  a  higher 
stratum.  But  this  depletion  of  the  lower  ranks  is  more 
than  made  good  by  the  increasing  arrivals  of  new  shoals  of 
immigrants.  Thus  we  have,  perhaps  not  permanently,  but  as 
a  continuing  part  of  our  present  social  system,  a  vast  mass  of 
human  beings  doing  for  low  wages  work  that  is  dull,  monot- 
onous, and  according  to  our  standards  ill-paid. 

Now  I  am  by  no  means  disposed  to  assert  that  the  pro- 
tected industries  are  identical  with  the  industries  employing 
labor  of  this  sort.  Not  a  few  of  the  protected  industries  call 
for  labor  of  the  alert  and  intelligent  kind.  Many  industries 
which  have  nothing  to  do  with  protection  call  for  the  dull, 
weary,  unskilled  work.  Such  is  the  mining  of  anthracite 
coal,  whose  peculiar  conditions  have  of  late  been  so  con- 
spicuously brought  into  notice;  such  is  the  cotton  manufac- 
ture in  the  South,  where  during  the  last  twenty  years  a  vein 
of  this  low-lying  human  material  has  been  unexpectedly  dis- 


1-0  Free  Trade,  the  Tarijf  and  Reciprocity 

covered  and  exploited.  But  a  good  share  of  the  protected 
manufactures  are  in  this  class.  Large  parts  of  the  textile 
manufactures  in  the  Atlantic  States  belong  here,  and  are  in 
marked  contrast, —  to  give  one  example  —  to  such  an  in- 
dustry as  the  shoe  manufacture.  I  cannot  but  believe  that 
\hj  increasing  the  opportunities  for  the  utilization  of  labor 
of  this  sort  the  protective  system  has  added  to  our  social  and 
political  difficulties.  The  safe  absorption  and  remaking  of 
these  unskilled  and  uneducated  masses  is  largely  a  question 
of  degree.  A  ce-rtain  amount  v^e  can  make  over;  too  many 
of  them  would  swamp  orur  institutions,  ^o  thinking  man 
can  view  without  concern  the  rapid  increase  in  their  num- 
bers, or  believe  that  it  is  for  our  social  or  moral  advantage 
to  add  by  legislative  policy  to  the  range  of  industries  which 
create  a  demand  for  them. 

I  pass  now  to  more  difficult  matters:  to  some  phases  of 
the  controversy  concerning  which  economists  are  much  less 
in  accord,  and  on  which  something  is  to  be  said  on  both  sides. 
And  here  I  will  begin  with  two  lines  of  reasoning  that  are 
not  commonly  considered  together,  but  which  seem  to  me  to 
involve  essentially  the  same  question  of  principle.  One 
of  them  is  the  argument  against  dumping;  the  other  is  the 
argument  for  the  protection  of  agricultural  products  against 
the  competition  of  new  countries. 

"  Dumping "  I  take  to  mean  the  disposal  of  goods  in 
foreign  countries  at  less  than  normal  price.  It  can  take 
place,  as  a  long-continued  state  of  things,  only  where  there 
is  some  diversion  of  industry  from  the  usual  conditions  of 
competition.  It  may  be  the  result  of  an  export  bounty,  which 
enables  goods  to  be  sold  in  foreign  countries  at  a  lower  price 
than  at  home.  It  may  be  the  result  of  a  monopoly  or  ef- 
fective combination,  which  is  trying  to  keep  prices  within 
a  country  above  the  competitive  point.  Such  a  combination 
may  find  that  its  whole  output  can  not  be  disposed  of  at 


The  Present  Position  of  the  Doctrine  of  Free  Trade      11 

these  prices,  and  may  sell  the  surplus  in  a  free  market  at 
anything  it  will  fetch  —  always  provided  it  yields  the  mini- 
mum of  "  prime  cost "  or  ''  direct  cost." 

Xow,  if  this  sort  of  thing  goes  on  indefinitely,  I  confess 
that  I  am  unable  to  see  why  it  can  be  thought  a  source  of 
loss  to  the  dumped  country;  unless,  indeed,  we  throw  over 
all  our  accepted  reasoning  on  international  trade  and  take 
the  crude  protectionist  view  in  toto.  If  one  country  chooses 
to  present  goods  to  another  for  less  than  cost;  or  lets  its  in- 
dustrial organization  get  into  such  condition  that  a  monop- 
oly can  levy  tribute  at  home,  and  is  then  enabled,  or  com- 
pelled by  its  own  interests,  to  present  foreign  consumers  with 
goods  for  less  than  cost  —  why  should  the  second  country 
object  ?  Is  not  the  consequence  precisely  the  same,  so  far 
as  that  other  country  is  concerned,  as  if  the  cost  of  the  goods 
had  been  lowered  by  improvement  in  production  or  trans- 
portation, or  by  any  method  w^hatever  ?  Unless  there  is  some- 
thing intrinsically  harmful  in  cheap  supply  from  foreign 
parts,  why  is  this  kind  of  cheap  supply  to  be  condemned? 

The  answer  seems  to  me  to  depend  on  the  qualification 

stated   above if  this  sort   of   thing  goes   on  indefinitely. 

Suppose  it  goes  on  for  a  considerable  time,  and  yet  is  sure 
to  cease  sooner  or  later.  There  would  then  be  a  displace- 
ment of  industry  in  the  dimiped  country,  with  its  inevitable 
difficulties  for  labor  and  capital;  and  later,  when  the  abnor- 
mal conditions  ceased,  a  return  of  labor  and  capital  to  their 
former  occupations,  again  with  all  the  difiiculties  of  transi- 
tion. It  is  the  temporary  character  of  dumping  that  gives 
valid  ground  for  trying  to  check  it. 

A  striking  case  of  this  sort  has  always  seemed  to  me  to 
be  that  of  the  European  export  bounties  on  sugar,  which 
for  so  long  a  period  caused  continental  sugar  to  be  dumped 
in  Great  Britain.  These  bounties  were  not  established  of 
set  purpose.  They  grew  unexpectedly,  in  the  leading  coun- 
tries, out  of  a  clumsy  system  of  internal  taxation.     They  im- 


12  Free  Trade,  the  Tariff  and  Reciprocity 

posed  heavy  burdens-  on  the  exchequer,  as  well  as  on  the 
domestic  consumer,  in  the  bounty-giving  countries ;  and  they 
were  upheld  by  a  senseless  spirit  of  international  rivalry. 
Kepeated  attempts  to  get  rid  of  them  by  international  con- 
ferences showed  that  the  cheap  supply  to  the  British  con- 
sumer, and  the  embarrassment  of  the  West  Indian  planter 
and  the  British  refiner,  rested  not  on  the  solid  basis  of  per- 
manently improved  production,  but  on  the  uncertain  support 
of  troublesome  legislation.  It  might  well  be  argued  that 
these  conditions  would  come  to  end  sooner  or  later.  The 
longer  the  end  was  postponed,  the  worse  was  the  dislocation 
of  industry  and  the  more  difficult  the  eventual  return  to  a 
settled  state  of  things.  No  doubt  these  were  not  the  only 
considerations  that  in  fact  led  Great  Britain,  the  one  great 
dumping-ground,  to  serve  notice  that  she  would  impose  im- 
port duties  equal  to  the  bounties  unless  the  bounties  were 
stopped.  Perhaps  this  decisive  step  would  have  been  taken 
even  if  it  had  appeared  that  the  bounties  were  to  continue 
as  a  permanent  factor  in  the  sugar  trade.  But  it  is  in  their 
probably  temporary  character  that  the  sober  economist  finds 
justification  for  the  policy  that  led  to  their  abolition.  At 
all  events,  there  is  tenable  ground  for  arguing  that  Great 
Britain,  in  causing  them  to  be  stamped  out,  acted  not  only 
in  the  interest  of  the  much-abused  consumers  of  sugar  on 
the  Continent,  but  in  the  permanent  interests  of  her  own 
industrial  organization. 

The  other  familiar  case  of  dumping  is  that  of  monopoly. 
Here  too  it  may  be  maintained  with  much  show  of  reason 
that  the  diversion  from  the  normal  conditions  of  industry 
is  but  temporary.  Can  any  country  be  persuaded  in  the 
long  run  that  it  is  for  its  advantage  to  support  or  aid,  by 
protective  duties,  or  by  any  other  method,  a  monopoly  which 
mulcts  the  domestic  consumer  and  thereby  is  enabled  to 
make  presents  to  the  foreigner  ?  Yet  the  strength  of  vested 
interests,  the  curious  conservatism  of  partisan  feeling,  per- 


The  Present  Position  of  the  Doctrine  of  Free  Trade      13 

sistent  sophistry  about  giving  employment  to  labor  and  turn- 
ing the  wheels  of  industry,  may  keep  the  practice  going  for 
a  long  period.  Any  measures  that  would  bring  it  to  an  early 
end  should  be  welcome  alike  for  the  country  that  dumps  and 
for  that  into  which  there  is  dimiping." 

1  turn  now  to  another  phase  of  this  same  question.  The 
competition  of  the  United  States  and  of  other  newly  opened 
countries  has  depressed  the  prices  of  various  articles  of  food 
in  Europe;  has  restricted,  or  threatened  to  restrict,  the 
volume  of  agricultural  production ;  and  has  caused  an  in- 
creasing drift  of  population  to  manufacturing  industries. 
But  these  conditions,  it  is  maintained,  are  but  temporary. 
The  new  countries  will  not  remain  new.  Their  population 
grows  rapidly,  and  their  fresh  lands  are  fast  being  absorbed. 
It  is  to  be  expected  that  sooner  or  later  their  numbers  will  be 
increased,  and  their  own  food  supply  increasingly  drawn 
on,  until  they  have  no  food  for  export.  The  countries  to 
which  this  food  supply  had  been  sent,  and  whose  industries 
had  been  adjusted  on  that  basis,  will  find  readjustment  to 
the  old  basis  inevitable.  First  a  large  part  of  their  popula- 
tion is  transferred  from  agricultural  to  manufacturing  in- 
dustries, and  then  must  be  transferred  back  to  agriculture 
again.  Each  process  of  transition  is  necessarily  slow  and 
possibly  painful,  and  the  suifering  and  losses  outweigh  the 

2  No  doubt  in  weighing  the  advisability  of  such  measures,  it  would 
be  necessary,  and  at  the  same  time  extremely  difficult,  to  ascertain 
whether  the  dumped  article  really  was  exported  at  an  abnormally  low 
price.  It  is  familiar  knowledge  that  the  Steel  Corporation,  for  exam- 
ple, is  selling  some  articles  for  export  at  less  than  the  domestic  price. 
But  it  is  quite  possible  that  the  export  price,  while  less  than  the  do- 
mestic price,  is  not  really  below  the  level  of  normal  cost.  So  much 
the  worse,  doubtless,  for  the  consumer  at  home;  but  this  is  not  fc, 
matter  that  concerns  the  foreigner,  who  buys  the  steel  at  no  more 
and  no  less  than  a  reasonable  figure.  It  seems  to  be  at  least  doubtful 
whether  the  foreign  sales  are  in  fact  likely  to  be  made  for  any  con- 
siderable time  at  a  price  below  the  long-run  cost  of  production.  If 
not,  the  question  which  presents  itself  is  the  ordinary  one  of  protec- 
tion, not  the  peculiar  one  of  a  temporary  dislocation  of  industry. 


14  Free  Trade,  the  Tariff  and  Reciprocity 

temporary  benefit  during  the  comparatively  brief  period  of 
cheaper  food  supply.  Is  it  not  wiser  to  protect  agriculture 
for  a  while,  and  keep  industry  in  its  even  and  permanent 
course  ? 

Here  again  the  answer  turns  on  the  temporary  nature  of 
the  situation.  If  it  were  clear  that  the  cheaper  food  sup- 
plies would  cease  to  be  available  after  ten  years,  or  twenty 
years,  there  would  seem  to  be  good  grounds  for  resisting  this 
American  invasion.  The  longer  the  period  over  which  the 
new  conditions  are  likely  to  last,  and  the  more  uncertain 
their  end  or  the  stages  by  which  their  end  will  be  reached, 
the  weaker  is  the  case  for  resistance.  Xow  all  the  indica- 
tions are  that  the  relations  between  new  countries  and  old 
countries,  as  they  have  developed  during  the  last  half-cen- 
tury, will  endure  for  a  long  period  —  a  period  not  to  be 
measured  by  years  or  decades,  perhaps  not  by  generations. 
Many  have  been  the  books  and  pamphlets  published  during 
the  last  twenty  years,  foretelling  that  the  end  was  near  and 
that  the  opening  of  new  sources  of  supply  had  ceased.  Yet 
the  building  of  new  railways  and  the  general  advance  in 
transportation,  as  well  as  the  discovery  of  regions  not  be- 
fore thought  available,  have  accentuated  the  present  situa- 
tion of  the  modern  world,  and  have  postponed  to  an  indefi- 
nite future  the  predicted  reaction.  To  attempt  now  to  make 
provision  for  such  an  indefinite  future  is  at  the  least  very 
doubtful  policy.  What  will  be  the  relation,  a  century  hence, 
between  the  old  countries  and  the  countries  now  new;  what 
will  then  be  the  sources  of  food  supply  for  the  civilized  world ; 
what  will  be  the  process  by  which  the  old  countries  fall  back 
again  on  their  own  resources  —  if  indeed  they  do  fall  back  — 
these  are  questions  which  the  statesmen  of  the  present  day  had 
best  leave  to  the  distant  successors  who  may  eventually 
have  to  deal  with  them. 

A  curious  argument,  connected  with  this  set  of  considera- 
tions, has  been  advanced  by  one  of  the  most  distinguished 


The  Present  Position  of  the  Doctrine  of  Free  Trade      15 

economists  of  our  time.  A  revival  of  the  more  extreme 
phase  of  the  Malthusian  reasoning,  it  looks  to  the  influence 
of  more  abundant  food  supplies  on  the  growth  of  population 
and  the  standard  of  living.  Briefly,  the  reasoning  is  that 
cheaper  food  will  simply  cause  an  increase  of  numbers,  and 
a  lowering  of  the  standard  of  living.  When  food  thereafter 
becomes  dearer,  either  in  occasional  seasons  of  dearth  or  — 
what  is  supposed  to  be  probable  —  as  a  permanent  matter 
in  the  not  distant  future,  there  will  be  nothing  to  fall  back 
on.  The  larger  population  which  the  temporary  period  of 
plenty  had  called  out  will  suffer  the  more  when  the  condi- 
tions of  limited  supply  return.  This  is  just  what  Malthus 
maintained  a  century  ago.  But  it  is  also  just  what  a  cen- 
tury of  economic  and  social  history  has  disproved.  I  am  by 
no  means  of  the  opinion  that  the  century's  history  has  dis- 
proved the  general  Malthusian  theorem  —  the  tendency  to 
pressure  and  the  need  of  restraint.  But  the  particular 
corollary  as  to  the  inexpediency  of  cheaper  food  seems  to  be 
quite  untenable.  The  causes  of  restraint  or  lack  of  restraint 
in  multiplication  are  much  more  complex  than  it  assumes. 
IN'otable  among  them  are  the  advance  of  education  and  in- 
telligence, and  the  desire  and  opportunity  to  rise  in  the  social 
scale,  which  Malthus  himself  believed  to  be  the  vis  medicatrix 
of  the  community.  Where  intelligence  and  ambition  are 
present,  material  well-being  has  a  favorable  effect  of  a  cumula- 
tive kind:  a  fairly  high  standard  of  living,  once  set  going, 
tends  not  only  to  maintain  itself,  but  to  rise.  Something 
of  a  lift  must  be  given  before  an  independent  upward  move- 
ment can  maintain  itself.  The  general  rise  in  the  standard 
of  living  w^hich  the  leading  countries  have  secured  in  the 
last  half-century,  and  which  has  been  due  largely  to  cheaper 
supplies  of  food  and  materials  from  the  new  countries,  has 
served  to  give  the  needed  lift. 

I  turn  now  to  that  course  of  reasoning  which  has  long 


16  Free  Trade,  the  Tariff  and  Reciprocity 

been  among  the  economists  most  effective  in  favor  of  pro 
tection:  the  argument  for  protection  to  young  industries. 
It  goes  by  other  names  and  uses  other  phrases.  It  is  some- 
times called  educating  or  nurturing  protection.  In  popular 
controversy  it  takes  the  form  of  the  contention  that  protec- 
tion, while  it  may  raise  temporarily  the  prices  of  the  goods 
protected,  in  the  long  run  lowers  them.  Throughout,  it 
rests  on  the  assumption  that  a  country  does  not  secure  with- 
out conscious  effort  or  considerable  sacrifice  those  industries 
which  in  the  long  run  are  most  advantageous  for  it. 

Let  us  consider  first  the  probable  range  in  the  application 
of  the  principle.  It  is  commonly  stated  to  be  applicable  to 
manufactured  goods  only,  not  to  raw  materials  —  including 
under  the  term  "  raw  materials  "  most  agricultural  products. 
Such  was  the  view  of  List,  the  German  economist,  who  has 
given  the  most  elaborate  and  perhaps  the  most  effective  state- 
ment of  the  argument.  Indeed  it  is  only  from  this  point  of 
view  that  there  is  any  strong  distinction  between  duties  on 
manufactures  and  those  on  raw  materials.  No  doubt,  some- 
thing may  be  said,  by  way  of  special  objection  to  taxes  on 
raw  materials,  that  they  accumulate  as  profits  are  heaped 
up  on  them  in  the  successive  stages  through  which  the  com- 
modity passes  before  reaching  the  consumers'  hands.  But 
this  makes  only  a  difference  of  degree,  and  perhaps  not  a 
great  difference  of  degree,  between  raw  materials  and  most 
manufactures ;  whereas,  so  far  as  the  young  industries  argu- 
ment goes,  there  is  a  difference  in  kind.  Nature  has  settled 
what  sorts  of  raw  materials  a  country  is  fitted  to  produce. 
No  encouragement  from  protective  duties,  for  example,  can 
so  stimulate  the  growth  of  forests  in  the  United  States  as 
to  bring  us  in  the  end  cheaper  timber.  No  such  stimulus 
can  cause  the  climate  of  the  country  to  become  better  adapted 
for  wool  growing,  or  give  it  the  peculiar  advantages  which 
the  interior  of  Australia  has  for  this  fonn  of  pastoral  indus- 


The  Present  Position  of  the  Doctrine  of  Free  Trade       IT 

try;    or  make   Louisiana   as   well   fitted   for   growing  cane 
sugar  as  Cuba. 

Nevertheless,  it  must  be  admitted  that  even  so  far  aa 
this  special  argument  for  protection  is  concerned,  there  may 
be  sometimes  as  good  reason  for  duties  on  raw  materials 
as  on  manufactures.  Mining  operations  usually  involve  an 
initial  stage  of  experiment  and  uncertainty,  and  almost  al 
ways  call  for  a  heavy  investment  of  fixed  capital.  The  his- 
tory of  the  iron  industry  in  the  United  States  and  Ger- 
many, suggests  at  least  the  possibility  that  a  stage  of  arti- 
ficial 'and  expensive  stimulus  may  be  followed  by  an  eventual 
attainment  of  developed  and  cheapened  production.  Agri- 
culture seems  to  present  such  possibilities  in  less  degree ;  pas- 
toral industry  still  less ;  and  forestry  least  of  all. 

Unlike  most  other  parts  of  the  controversy  between  free 
trade  and  protection,  the  young  industries  argument  con- 
nects itself  with  few  other  questions  of  economic  theory,  and 
is  to  be  considered  chiefly  in  the  light  of  specific  experience. 
The  benefits  of  imports  and  exports,  the  relations  of  domestic 
and  foreign  industry,  wages,  foreign  cheap  labor,  surplus 
products,  over-production,  dumping  —  these  topics  at  once 
spread  over  into  the  general  field  of  economics.  IN^ot  only  do 
they  thus  enlarge,  but  they  can  be  disposed  of  chiefly  by 
that  mode  of  general  reasoning  from  comparatively  simple 
premises  which  still  remain  the  most  valuable  tool  at  the 
disposal  of  the  economist.  But  whether  protection  to  young 
industries  will  or  will  not  have  good  effects,  is  simply  a  ques- 
tion of  probability  for  the  given  case.  Precisely  the  op- 
posite result  from  protection  has  not  infrequently  been  dis- 
covered or  supposed  to  be  discovered.  It  has  been  said  that 
protection,  so  far  from  leading  to  improvements  and  eventual 
cheapening,  leads  to  the  retention  of  antiquated  and  ineffi- 
cient methods  of  production  and  so  to  continued  enhance- 
ment of  prices.     There  is  good  ground  for  believing  that  the 


18  Free  Trade,  the  Tariff  and  Reciprocity 

long  continued  protective  regime  in  France  during  the  first 
half  of  the  nineteenth  century  had  ill  results  of  this  kind. 
One  of  our  ardent  free-traders,  the  late  David  A.  Wells, 
repeatedly  maintained  that  the  same  consequences  had  ap- 
peared in  the  United  States.  His  conclusion  may  have  been 
justified  by  what  happened  during  the  period  of  abnormal 
industrial  conditions  that  followed  the  Civil  War ;  yet  I  doubt 
whether  the  experience  of  the  United  States  as  a  whole  sup- 
ports it.  The  truth  is  that  either  result  may  ensue.  Among 
an  active  and  enterprising  people  the  diversion  of  industry 
into  new  channels  may  lead  to  progress,  improvement,  and 
eventual  gain;  whereas  in  a  timid  and  stagnant  people  the 
stimulus  of  competition  from  abroad  may  be  necessary  to 
rouse  them  to  their  best  efforts.  The  problem  of  protection — . 
to  young  industries  thus  offers  an  especial  field  for  the  in- 
ductive and  historical  method  in  its  stricter  sense  —  the  pa- 
tient investigation  of  particular  cases,  and  the  possible  final 
construction  of  an  edifice  of  truth,  by  the  slow  gathering  of 
fragments  of  knowledge. 

For  the  purpose  of  aiding  legislation  in  our  own  day, 
however,  investigation  of  this  sort  must  be  confined  to  mod-  Z' 
ern  experience  —  the  experience,  say,  of  the  nineteenth  cen- 
tury. Investigations  on  earlier  periods,  on  the  industrial 
regime  of  the  Middle  Ages,  the  system  of  Colbert,  the  early 
protective  policy  of  Great  Britain,  the  paternalism  of  the 
rulers  of  Brandenburg  and  Prussia,  will  teach  us  little  for 
the  problems  of  the  present.  The  value  and  interest  of 
such  investigations  are  not  to  be  denied.  We  have  dis- 
carded certain  notions  of  the  earlier  economists  as  to  the 
necessary  harmfulness  or  futility  of  the  conscious  direction 
of  industry,  and  know  that  we  have  still  much  to  learn  about 
the  causes  of  progress  in  the  past.  But  modern  conditions 
differ  radically  from  those  preceding  the  nineteenth  century, 
and  have  changed  fundamentally  in  the  last  fifty  years. 
Technical  education  has  been  so  improved  and  diffused  as  to 


The  Present  Position  of  the  Doctrine  of  Free  Trade      19 

make  immenselj  easier  the  adoption  anywhere  of  a  new 
process.  All  the  means  of  communicating  knowledge,  from 
the  printing  press  to  the  telegraph,  serve  to  spread  rapidly 
information  about  changes  in  the  arts.  Kestrictions  on  the 
sale  or  export  of  machinery  have  disappeared.  Capital  is 
abundant,  and  is  constantly  and  eagerly  seeking  fresh  em- 
ployment. The  conditions  are  very  different  from  those  that 
had  to  be  faced  by  the  undertaker  of  the  seventeenth  and 
eighteenth  centuries,  even  of  the  first  half  of  the  nineteenth. 
Whatever  economic  history  can  tell  us  about  his  troubles  and 
obstacles,  it  can  teach  little  as  to  the  extent  to  which  his  suc- 
cessor in  modern  times  needs  the  prop  of  legislative  aid  in 
new  ventures.  ^ 

Looking  now  at  modern  experience  in  protection  to  young 
industries,  what  result  do  we  find  ?  The  answer,  alas,  is 
not  certain.  Sometimes  we  seem  to  find  a  degree  of  success, 
sometimes  of  failure.  The  besetting  difficulty  of  all  purely 
inductive  inquiry  in  the  doings  of  man  is  ever  present.  We 
can  not  isolate  causes.  We  can  not  apply  protection  to  a 
country,  and  make  sure  that  everything  else  remains  im- 
changed.  A  protective  duty  may  be  followed  by  an  increase 
of  domestic  production,  by  a  new  and  independent  industry, 
by  an  eventual  benefit  to  the  community  in  the  way  of 
cheaper  commodities;  but  the  question  always  will  remain 
whether  other  causes  have  been  at  work,  and  whether  the 
same  result  would  not  have  ensued  without  the  tariff  in  favor 
of  the  young  industry. 

Contrast  the  history  of  Germany  and  of  France.  For 
the  whole  period  up  to  1860,  France  had  a  restrictive  regime 
of  the  greatest  severity.  Yet  I  have  seen  no  evidence  ad- 
duced that  during  that  period  of  rapid  industrial  advance 
in  the  world  at  large,  any  gain  was  secured  by  France  in 
the  way  of  successfully  establishing  an  industry  that  was  able 
to  hold  its  own  without  aid.  In  Germany,  on  the  other  hand, 
the  trend  of  opinion  among  competent  observers  seems  to  be 


20  Free  Trade,  the  Tariff  and  Reciprocity 

that  at  least  during  the  second  third  of  the  century  the  tariff 
policy  of  the  Zollverein,  though  much  more  moderate  than 
that  of  France  during  the  same  period,  nurtured  German 
manufacture  to  advantage.  The  establishment  of  free  trade 
within  Germany  by  this  beneficent  customs  union  opened 
great  possibilities  of  internal  growth,  which  were  more  easily 
turned  into  realities  by  a  period  of  shelter  from  foreign, 
especially  English,  competition.  During  the  last  third  of 
the  nineteenth  century,  Germany's  industrial  growth  was 
one  of  the  remarkable  phenomena  of  our  time;  but  this 
growth  began  under  the  moderate  protectionist  regime  of 
the  Zollverein,  and,  whether  or  not  promoted  also  by  the  ac- 
centuated protection  that  began  in  1879,  has  certainly  been 
much  affected  by  other  factors  also,  to  some  of  which  I 
shall  presently  refer.  •  • 

In  the  United  States  we  find  similarly  conflicting  evi- 
dence. Some  researches  of  my  own  have  led  me  to  believe 
that  on  the  whole,  the  first  growth  of  manufactures  in  this 
country,  in  the  early  years  of  the  nineteenth  century,  was 
advantageously  promoted  by  restrictions  on  competing  im- 
ports. As  we  come  nearer  to  the  present  time,  the  case  in 
favor  of  protection  becomes  more  and  more  doubtful.  In  the 
policy  of  extreme  and  all-embracing  protection  which  has 
been  gradually  built  up  since  the  Civil  War,  it  would  have 
been  surprising  indeed  if  we  had  not  scored  a  few  hits. 
Where  you  send  innumerable  shots  promiscuously  in  a  given 
direction,  some  few  of  them  are  likely  to  hit  the  mark.  But 
specific  and  unbiased  inquiry  on  those  points  is  sadly  needed, 
and  offers  a  promising  opportunity  for  scholarly  investiga- 
tion. It  is  obvious  that  there  has  been  not  only  an  enormous 
growth  of  manufacturing  industry,  but  a  great  improvement 
in  methods  of  production  and  a  growing  independence  of 
foreign  competition.  How  far  this  gain  has  been  carried  to 
the  point  which  proves  that  the  community  is  now  better  off 
than  it  would  be  if  it  had  depended  on  foreign  supply;  and 


The  Present  Position  of  the  Doctrine  of  Free  Trade      21 

how  far  such  a  gain,  further,  may  have  been  due  to  causes 
quite  independent  of  encouragement  in  the  way  of  protec- 
tion — these  are  questions  which  certainly  can  not  be  disposed 
of  without  much  painstaking  and  unbiased  inquiry,  and  for 
which  even  such  inquiry  very  likely  would  yield  no  clear- 
cut  answer.^ 

Our  conclusions  as  to  the  general  validity  of  the  argu- 
ment for  protection  to  young  industries  thus  have  an  uncer- 
tain ring.  Yet  it  must  be  added  that  while  such  protection 
can  not  be  proved  useless,  there  is  at  least  one  striking  phe- 
nomenon which  proves  it  to  be  not  indispensable.  That 
phenomenon  is  found  in  our  own  country.  Here  we  have 
seen,  under  a  regime  of  the  most  absolute  free  trade,  the 
gradual  and  steady  growth  of  manufactures  in  communities 
that  a  few  decades  a^o  were  exclusively  agricultural.  In 
our  Southern  states  the  cotton  manufacture  has  grown  and 
prospered  in  face  of  the  competition  of  the  established  in- 
dustry of  Xew  England.  It  found  in  the  South  advantages 
of  situation,  and  a  labor  supply  which  proved  amenable  to 
profitable  exploitation.  But  these  advantages  could  not  be 
utilized  without  an  initial  period  of  experiment  and  uncer- 
tainty, and  during  this  the  older  industry  had  all  the  ad- 
vantages against  which  protection  is  supposed  to  be  neces- 
sary. Even  more  instructive  is  the  transformation  of  the 
great  Central  region  —  the  states  north  of  the  Ohio  and  east 
of  the  Mississippi.  Here  we  have  seen,  under  a  regime 
of  complete  free  trade  within  the  country,  the  steady  growth 
of  manufactures.  When  the  field  was  favorable  for  a  new 
industry,  whether  from  rich  natural  resources,  from  advan- 
tage in  location,  or  from  ingenuity  and  enterprise  among 
the  leaders  of  industry  and  the  rank  and  file,  there  the  in- 

3  In  my  book  on  "Some  Aspects  of  the  Tariff  Question"  (1916),  I 
have  given  at  some  length  the  results  of  investigations  from  this  point 
of  view  on  the  history  of  the  iron  industry,  the  sugar  industry,  and  the 
textile  manufactures. 


22  Free  Trade,  the  Tariff  a7id  Reciprocity 

dustry  has  expanded  and  flourished,  unchecked  by  the  com- 
peting establishments  of  the  older  states.  Some  of  the  in- 
dustries that  so  sprang  up  in  the  Central  region  have  been 
of  the  kind  that  felt  the  stimulus  of  protection  against  in- 
ternational competition.  Some  have  been  quite  independent 
of  this  stimulus,  the  question  being  not  whether  they  would 
spring  up  within  the  country,  but  where  within  the  country  — 
whether  along  the  sea-board  or  in  the  interior.  In  either  case, 
the  full  competition  of  the  older  regions  of  our  own  country 
has  been  felt  by  the  newer  regions.  The  diversification  of 
the  newer  regions  has  nevertheless  proceeded  smoothly  and 
steadily.  That  diversification  continues  and  will  continue, 
notwithstanding  the  most  absolute  free  trade  throughout  our 
own  borders.  I^o  artificial  fostering  as  against  the  manu- 
factures of  the  East  has  been  possible ;  though,  if  possible,  it 
would  doubtless  have  been  asked.  Yet  the  growth  of  manu- 
factures in  the  Central  region  has  been  perhaps  the  most 
striking  change  in  the  industrial  structure  of  the  country 
during  the  last  generation. 

These  familiar  facts  must  make  us  hesitate  before  ascrib- 
ing to  legislative  interposition  too  much  effect  on  the  develop- 
ment of  new  industries  or  on  the  general  course  of  economic 
progress.  I  have  already  referred  to  the  difficulty  of  disen- 
tangling the  complex  forces  that  bear  on  economic  progress, 
and  will  not  pretend  to  offer  anything  in  the  way  of  proof 
for  what  I  have  further  to  offer  as  regards  the  relative 
weight  of  different  factors.  Briefly  stated,  my  belief  is 
that  the  general  structure  and  spirit  of  the  social  body  are 
much  more  important  than  specific  encouragement  to  this 
or  that  industry.  Any  detailed  statement  of  the  grounds 
of  this  opinion  would  carry  us  into  fields  much  more  specula- 
tive than  those  which  have  been  considered  in  the  preceding 
pages;  and  it  must  suffice  to  illustrate  rather  than  support 


The  Present  Position  of  the  Doctrine  of  Free  Trade      23 

it  from  a  brief  consideration  of  some  aspects  of  social  and 
economic  history. 

First  there  is  the  case  of  England.  Clearly  several  causes 
contributed  to  the  remarkable  economic  adv<ance  of  that  coun- 
try during  the  eighteenth  and  nineteenth  centuries.  Her 
iXLSular  position  preserved  her  from  the  wars  which  devastated 
the  Continent.  Her  indented  coast  cheapened  internal  trans- 
portation from  an  early  date.  Her  great  mineral  resources 
supplied  the  foundations  of  the  modern  workshop.  The  pro- 
tective system  of  older  days  is  supposed  to  have  nurtured 
her  industries  until  they  became  independent  —  with  how 
great  effect,  is  the  debatable  question.  But  most  important 
of  all  has  been  the  atmosphere  of  freedom,  and  the  clear 
avenue  to  conspicuous  success  which  has  been  open  to  all 
who  were  capable  and  strong.  Political  freedom  came  first, 
and  soon  was  supplemented  by  industrial  freedom.  Hence 
the  all-pervading  spirit  of  ambition,  resource,  enterprise.  To 
this  spirit  a  stimulus  of  incalculable  strength  has  been  given 
by  the  curious  development  of  the  British  social  hierarchy. 
Nowhere  has  the  aristocracy  held  its  place  so  strongly  in  the 
esteem  of  the  rest  of  the  community,  and  nowhere  has  ad- 
mission to  that  aristocracy  been  more  free.  The  rich  mer- 
chant, manufacturer,  banker,  mounts  readily  on  the  social 
ladder.  Given  plenty  of  riches,  a  little  time,  and  he  or  his 
descendants  become  associates  of  peers,  soon  become  peers 
themselves.  In  the  eighteenth  century  Adam  Smith,  re- 
marking on  the  differences  between  England  and  France, 
mentioned  France  as  a  countrv  where  trade  was  in  dis^Tace, 
and  England  as  one  where  it  was  higildy  respected.  The  ma- 
terialism of  the  British  aristocracy  and  the  snobbishness  of 
British  society  have  long  been  topics  for  the  satirist.  But 
materialism  and  snobbishness  have  enlisted  the  strongest  of 
social  motives,  the  undying  love  of  distinction,  in  the  direc- 
tion of  economic  initiative  and  industrial  advance. 


24  Free  Trade,  the  Tariff  and  Reciprocity 

Factors  of  tlie  same  kind  have  been  powerful  in  our  own 
country.  Every  career  and  every  degree  of  success  have 
been  open  to  all;  open  not  only  under  the  law_>  but  under 
the  mobile  conditions  of  a  thoroughly  democratic  community. 
The  most  obvious  avenue  to  distinction  has  been  the  at- 
tainment of  wealth.  Large  enterprises,  whether  in  trade, 
manufactures,  or  transportation,  have  long  enlisted  the  most 
capable  intellects  of  the  country.  Every  opportunity  for  the 
conduct  of  business  on  a  large  scale  has  been  eagerly  scanned 
with  keen  eyes  by  the  captains  of  industry.  Add  to  this  the 
early  development  of  a  high  degree  of  mechanical  skill  and  in- 
genuity, and  natural  resources  which  are  varied  and  abundant 
to  an  unusual  degree,  and  you  have  conditions  under  which 
legislative  stimulus  is  at  best  of  secondary  importance.  The 
evidence  seems  to  me  conclusive  that  the  United  States  under 
•any  tariff  system  would  have  become  a  country  with  varied 
industries  and  with  highly  developed  manufactures.  The 
protective  duties  have  only  affected  the  degree  and  the  direc- 
tion of  that  development. 

Still  another  factor  deserves  to  be  noted.  N^ot  only  the 
spirit  of  freedom  and  enterprise  within  the  community  has 
its  effect,  but  that  spirit  with  reference  to  other  communities 
also.  The  political  position  of  a  country  and  its  martial  suc- 
cess seemed  to  have  a  reflex  effect  on  the  industrial  success 
of  its  citizens  in  time  of  peace. 

Here  the  recent  development  of  Germany  is  opposite. 
Her  industrial  advance  during  the  generation  that  followed 
the  Franco-German  war  is  one  of  the  striking  phenomena  of 
our  time,  and  leads  naturally  to  speculation  on  its  <^.auses. 
No  doubt,  as  in  all  such  cases,  these  causes  are  varied.  The 
thorough  organization  of  popular  education  and  of  scientific 
education  is  one  cause.  The  stimulating  effect  of  free  trade 
within  the  country,  as  established  by  the  Zollverein  since 
1834,  is  another :  though  this  gain  had  been  enjoyed  by  France 
throughout   the   nineteenth    century,    and    by    England   for 


The  Present  Position  of  the  Doctrine  of  Free  Trade      25 

centuries  before.  Much  is  due  to  the  whole  change  in  the  po- 
litical and  social  atmosphere  which  came  with  the  crumbling 
of  petty  absolutism,  and  which  was  consummated  with  the 
foundation  of  the  German  Empire.  But  to  all  this  must  be 
added  the  new  spirit  which  came  over  the  country  after  the 
war  of  1870-71.  Germany  emerged  from  the  conflict  with 
a  new  sense  of  strength  and  confidence.  The  feeling  com- 
municated itself  to  the  field  of  peaceful  industry.  Vigor, 
enterprise,  and  boldness  showed  themselves.  Large  enter- 
prises in  ncAV  fields  were  launched  and  successfully  conducted, 
and  great  captains  of  industry  came  to  the  fore.  A  spirit  of 
conquest  in  all  directions  seems  to  have  spread  through  the 
people,  bred  or  at  least  nurtured  by  the  military  conquest. 

Is  it  fanciful  to  suppose  that  consequences  of  the  same  sort 
have  appeared  in  other  countries  also  after  victorious  wars? 
England  emerged  from  the  Napoleonic  wars  with  a  great 
feeling  of  pride  and  power.  She  alone  had  never  yielded 
to  the  great  conqueror.  The  period  which  followed  was 
that  of  her  most  sure  and  rapid  economic  advance.  She 
then  established  the  hegemony  in  the  industry  of  the  civilized 
world  which  she  maintained  through  the  nineteenth  cen- 
tury. The  northern  part  of  the  United  States  felt  a  similar 
impulse  after  the  Civil  War.  That  struggle  had  been  on  a 
greater  scale  than  was  dreamed  of  at  the  outset,  and  its  out- 
come proved  the  existence  of  unexpected  power  and  resource. 
Is  it  an  accident  that  the  ensuing  years  showed  a  spirit  of 
daring  in  industry,  and  sudden  and  successful  activity  in 
commercial  enterprises  ? 

No  one  is  more  opposed  than  I  am  to  all  that  goes  with 
war  and  militarism.  It  is  with  reluctance  that  I  bring 
myself  to  admit  that  the  same  spirit  which  leads  to  success  in 
war  may  also  lead  to  success  in  the  arts  of  peace.  Yet  so  it 
seems  to  be.  Men  being  what  they  are,  nothing  rouses  them 
so  thoroughly  as  fighting.  The  temper  which  then  pervades 
a  community  communicates  itself  by  imitation  and  emula- 


26  Free  Trade,  the  Tarijf  and  Reciprocity 

tion,  and  shows  itself  in  all  the  manifestations  of  its  activity. 
A  great  war  lifts  the  minds  of  men  to  large  undertakings, 
and  takes  its  place  with  other  factors  in  stimulating  the  full 
exercise  of  the  powers  of  every  individual. 

I  am  in  danger  of  straying  far  from  the  subject  in  hand. 
Yet  the  digressions  to  which  the  argument  for  protection 
to  young  industries  has  led  may  serve  to  enforce  one  con- 
clusion to  which  the  open  minded  consideration  of  the  whole 
free-trade  controversy  must  lead  the  inquirer:  namely,  that 
the  effects  of  tariff  legislation  are  commonly  much  over-esti- 
mated. Difficult  as  it  may  be  to  separate  the  causes  of  in- 
dustrial growth  and  to  measure  their  relative  weight,  it  is 
clear  that  the  factors  are  many  and  various.  The  effects  as- 
cribable  to  a  protective  system,  either  for  particular  indus- 
tries or  for  general  economic  growth,  are  among  the  subordi- 
nate phenomena,  and  far  from  having  that  transcendent  im- 
portance so  often  proclaimed  by  its  ardent  advocates. 

Let  me  turn  now  to  an  opinion,  or  point  of  view,  to  which 
reference  was  made  at  the  outset:  the  opinion  that  after  all 
on  this  subject  there  is  no  fundamental  principle.  A  set 
of  writers,  especially  among  contemporary  German  econo- 
mists, take  what  purports  to  be  a  severely  judicial  attitude. 
In  their  view  there  is  no  established  theory,  and  no  reason 
for  ascribing  greater  validity  to  the  doctrine  of  free  trade 
than  to  that  of  protection.  It  is  all  a  matter  of  advantage 
or  disadvantage  in  the  given  case.  Some  countries  may 
prove  on  inquiry  to  need  free  trade,  some  protection.  A 
policy  of  opportunism  is  the  only  sensible  one,  and  the  con- 
troversies about  theories  of  international  exchange  turn  on 
barren  abstractions  which  do  not  touch  the  concrete  facts  of 
industry. 

I  confess  to  little  patience  with  this  attitude.  It  assumes 
to  be  large-minded  and  judicial,  and  a  certain  tinge  of  con- 
tempt for  the  old-fashioned  theorists  often  goes  with  it.     Yet 


The  Present  Position  of  the  Doctrine  of  Free  Trade      27 

in  truth  it  usually  rests  on  inability  or  unwillingness  to 
follow  the  threads  of  severe  reasoning.  No  doubt  it  is  true 
that  the  concrete  circumstances  of  a  country  must  be  exam- 
ined and  considered  before  we  apply  to  it  a  given  policy. 
But  it  is  none  the  less  essential  to  make  up  our  minds  as  to 
the  principles  on  which  the  policy  should  rest.  Xo  doubt  it 
is  especially  true  that  in  weighing  the  chance  of  the  advan- 
tageous application  of  protection  to  young  industries,  the 
actual  conditions  of  each  case  and  the  prospects  of  success 
should  be  carefully  studied.  But  it  is  none  the  less  necessary 
to  reflect  what  are  the  foundations  and  limitations  of  such 
protection  and  what  are  the  real  tests  of  success.  On  all 
such  questions  of  principle  we  find  often,  too,  a  sad  lack 
of  clear-cut  reasoning  among  our  German  colleagues.  This 
defect  does  not  show  itself  solely  in  the  protective  controversy. 
It  appears  in  almost  every  part  of  the  economic  field,  as  soon 
as  the  more  difiicult  problems  are  touched.  On  the  theory 
of  value,  of  distribution^  of  prices  and  the  value  of  money,  as 
well  as  on  that  of  international  trade,  there  is  in  many  current 
manuals  and  text-books  a  pseudo- judicial  attitude,  which  ad- 
mits some  merit  in  this  position  as  well  as  in  its  opposite, 
and  opines  that  such  and  such  a  view  must  indeed  be  consid- 
ered but  must  not  be  pressed  too  far;  with  further  double- 
facing  expressions  that  end  in  leaving  the  reader  quite  in  the 
dark  as  to  the  author's  conclusions  on  the  heart  of  the  matter. 
It  is  easy  to  account  for  this  stage  of  thought,  especially 
among  writers  of  the  second  rank.  In  many  directions  eco- 
nomic theory  is  being  re-fashioned  and  on  many  topics  there 
is  not  yet  a  consensus  of  opinion.  At  least  there  does  not 
appear  to  be  such  a  consensus ;  though  the  differences  among 
economic  thinkers  on  the  large  questions  of  principle  are 
much  less  fundamental  than  they  are  sometimes  made  to  ap- 
pear. Yet  it  is  not  to  be  denied  that  on  some  deep-reaching 
topics,  especially  in  the  theory  of  distribution,  economic 
theory  is  now  in  a  stage  of  transition.     As  it  happens,  how- 


28  Free  Trade,  the  Tariff  and  Reciprocity 

ever,  there  has  been  least  attempt  at  change,  and  there  is 
least  occasion  for  change,  in  the  theory  of  international  trade. 
In  that  part  of  the  subject,  the  edifice  whose  foundation  was 
laid  by  Adam  Smith  and  his  contemporaries,  and  which  was 
further  built  up  by  Kicardo,  Senior,  and  the  younger  Mill, 
remains  substantially  as  it  was  put  together  by  these  ancient 
worthies.  Something  has  indeed  been  added  by  recent  writ- 
ers ;  yet  nothing  that  calls  for  a  remodeling  of  the  old  struc- 
ture. On  the  nature  of  international  trade,  on  its  peculiari- 
ties, its  working  machinery  in  the  foreign  exchanges  and 
the  flow  of  specie,  its  connection  with  the  drift  of  labor  and 
capital  to  different  industries,  its  bearing  on  the  demand  for 
labor,  and  not  least  the  effects  of  restrictions  in  the  way  of 
taxes  ■ —  on  all  these  topics  the  old  doctrines  have  never  been 
seriously  shaken.  Qualifications  of  one  sort  and  another  — 
deviations  from  the  regime  of  freedom  such  as  Adam  Smith 
himself  conspicuously  enumerated  —  contingencies  under 
which  commercial  blows  may  be  so  planted  as  to  convert  an 
opponent  into  an  ally  —  these  have  long  been  admitted.  Cer- 
tain refined  and  ingenious  trains  of  reasoning  have  been 
brought  forward,  too,  of  late  years,  regarding  the  effects  of 
protective  duties  on  the  distribution  of  wealth  and  on  the 
ultimate  elements  of  social  well-being.  They  connect  them- 
selves with  some  of  the  more  recent  speculations  in  economic 
theory  at  large.  Like  these,  they  have  had  no  effect,  as  yet 
at  least,  outside  the  small  fringe  of  scholars  and  teachers,  and 
no  very  marked  effect  even  within  that  fringe.  A  discussion 
of  them  would  carry  this  address  far  beyond  the  permissible 
limits.  At  best,  they  suggest  only  still  further  qualifications 
and  still  other  possible  exceptions,  and  they  leave  intact  the 
core  of  the  classic  theory  of  international  trade.  That  theory, 
in  its  essentials,  holds  its  own  without  a  serious  rival. 

This  being  the  case  among  the  thinkers,  the  question  nat- 
urally arises  as  to  how  it  happens  that  the  opposite  theory,  or 
at  least  the  policy  based  on  a  very  different  theory,  holds  its 


The  Present  Position  of  the  Doctrine  of  Free  Trade      29 

own  in  the  field  of  legislation.  Some  consideration,  how- 
ever brief,  must  be  given  to  this  question  in  any  inquiry  as 
to  the  present  position  of  the  doctrine  of  free  trade. 

There  is  no  one  explanation  of  the  strong  hold  which  pro- 
tection now  has  and  bids  fair  for  some  time  to  maintain. 
The  effectiveness  of  its  appeal  to  the  every-day  man  has  al- 
ready been  noted.  The  arguments  about  employment,  labor, 
domestic  industry,  home  markets  and  foreign  markets,  re- 
jected though  they  have  been  in  all  respectable  economic  writ- 
ing, emerge  again  and  again.  They  will  not  down,  and  they 
create  a  set  of  prepossessions  favorable  to  protectionist  legis- 
lation. But  in  European  countries  (for  the  moment,  I  have 
not  the  United  States  in  mind)  its  actual  adoption  has  been 
immensely  promoted  by  two  other  factors.  One  is  the  com- 
petition of  new  countries  in  agricultural  products.  The  other 
is  the  growth  and  intensification  of  national  feeling. 

The  effect  of  the  competition  of  new  countries  is  obvious 
enough.  With  the  cheapening  of  transportation,  not  only 
England,  but  France,  Germany,  and  the  other  countries  of 
Western  Europe  have  been  invaded  by  supplies  of  cheaper 
food  and  raw  materials.  The  agricultural  classes  have  felt 
the  pressure  of  foreign  competition.  Formerly  indifferent 
or  even  hostile  to  high  tariffs,  they  have  now  been  led  to 
join  in  the  demand  for  protection  against  cheaper  foreign 
supplies.  In  England  the  agricultural  interest  has  always 
been  restive  under  free  trade.  In  France  and  Germany, 
with  the  new  democratic  conditions,  its  influence  now  consti- 
tutes a  strong  political  force  against  the  application  of  that 
doctrine. 

Not  less  important,  however,  is  the  sentiment  of  national- 
ity and  its  unfortunate  counterpart,  the  sentiment  against  for- 
eigners. Of  the  ennobling  and  beneficent  effect  of  national 
feeling  there  is  no  need  to  speak.  Its  less  favorable  aspects 
unfortunately  are  most  conspicuous  in  relation  to  our  present 
subject.     Cobden  and  the  other  English  free-traders  of  half- 


30  Free  Trade,  the  Tarijf  and  Reciprocity 

a-centurj  ago  looked  forward  to  a  coming  era  of  peace  among 
nations,  streng-thened  by  the  links  of  friendly  exchange  and 
mutual  benefit.  How  sadly  have  these  hopes  been  disap- 
pointed !  Militarism  has  become  no  less  strong  than  it  was, 
even  stronger;  and  every  European  nation  has  held  itself 
habitually  in  readiness  for  war. 

Even  the  sober  economist,  unmoved  by  sentiment,  and 
looking  solely  to  the  direct  and  traceable  consequences  of 
this  state  of  things,  must  admit  that  here  is  a  situation  that 
does  not  fit  into  the  free-trade  ideal.  Great  Britain,  for 
example,  depends  for  feeding  her  people  on  foreign  sup- 
plies ;  and  it  is  an  inevitable  consequence,  however  regrettable 
a  one,  that  she  must  have  a  powerful  navy  as  security  against 
starvation  in  case  of  war.  No  doubt  the  balance  of  material 
gain  is  in  her  case  clearly  in  favor  of  free  trade :  it  is  cheaper 
to  have  a  navy,  even  a  huge  and  expensive  one,  than  it  would 
be  to  support  her  population  at  home.  But,  as  international 
relations  now  stand,  there  exists  this  expense  to  be  offset 
against  the  gain.  In  Germany  at  the  present  time  the  same 
set  of  persons  who  have  advocated  the  development  of  Ger- 
many as  an  exporting  country  and  a  "  world-power,"  have 
demanded  a  great  navy.  Oddly  enough,  these  same  persons 
are  protectionists  also.  But  if  a  navy  is  needful  to  safeguard 
exports,  it  is  no  less  needful  for  the  imports  which  must  also 
come. 

It  is  but  another  phase  of  the  same  drawback  against  the 
gain  from  international  trade,  that  it  is  liable  to  internip- 
tion.  A  war  between  the  great  countries,  such  as  is  always 
possible  and  often  seems  imminent,  would  greatly  hamper 
foreign  trade,  conceivably  destroy  it.  The  greater  the  previ- 
ous extension  of  trade,  the  more  complete  the  overturn  of 
commerce;  and  he  who  looks  on  war  as  sooner  or  later  in- 
evitable, and  perhaps  as  not  unwelcome,  is  not  loath  to  have 
the  industries  of  his  country  as  self-contained  and  as  self- 
dependent  as  possible. 


The  Present  Position  of  the  Doctrine  of  Free  Trade      31 

The  national  and  militant  feeling,  however,  has  eflFecta 
on  public  opinion  far  beyond  such  deliberate  weighings  of 
gain  or  loss  under  war  and  peace.  It  rouses  a  whole  train 
of  sentiments  which  run  against  trade  with  other  countries. 
It  fosters  international  rivalry  in  every  sphere.  Deliberate 
and  accurate  weighing  of  the  benefits  of  foreign  trade,  such 
as  it  is  the  business  of  the  economist  to  undertake,  probably 
determines  the  opinions  of  a  very  small  circle  indeed.  The 
state  of  mind  of  the  immense  majority  is  settled  by  their  gen- 
eral feelings  and  prepossessions.  These  are  in  favor  of  the 
native  country  and  against  foreigners;  in  favor  of  home 
markets  and  home  products,  and  against  foreign  competition. 
Add  to  this  the  strong  appeal  which  protectionist  reasoning 
makes  to  the  instinctive  prejudices  and  the  inherent  selfish- 
ness of  the  every-day  man,  and  you  have  an  explanation  of  its 
continued  hold. 

In  the  United  States  the  situation  is  different  from  that  in 
European  countries.  Here  we  have  in  recent  times  no  in- 
dustrial invasion  from  foreigners ;  we  are  ourselves  the  in- 
vaders. The  feeling  of  nationalism  is  doubtless  strong,  and 
has  promoted  protection  effectively;  but  the  peculiar  fervor 
which  militarism  adds  to  it  we  have  not  experienced,  unless  it 
be  under  the  conditions  of  the  last  few  years.  The  main- 
tenance of  our  protective  system  —  I  will  not  say  of  any 
such  system,  but  of  the  extreme  and  intolerant  protection 
which  we  have  developed  —  seems  to  be  explicable  chiefly  on 
historical  grounds.  Certainly  its  beginning  is  not  to  be  as- 
cribed to  any  deliberate  choice.  The  system  as  it  now  stands 
goes  back  to  the  Civil  War,  and  is  the  unexpected  outcome 
of  the  heavy  duties  then  suddenly  imposed.  It  has  main- 
tained itself  chiefly  by  the  effects  of  custom  and  iteration. 
The  industries  of  the  country  have  become  habituated  to  it ; 
and  what  is  no  less  important,  public  feeling  has  become 
habituated  to  it.  As  in  England  free  trade  has  been  the 
accepted  doctrine  from  sheer  force  of  use  and  habit,  so  in 


32  Free  Trade,  the  Tariff  and  Reciprocity 

the  United  States  protection  has  been  the  accepted  doctrine. 
And,  needless  to  say,  just  as  continued  material  progress 
strengthened  the  hold  of  the  accepted  system  in  England,  so 
it  has  strengthened  the  hold  of  the  opposite  system  in  the 
United  States.  The  appeal  to  let  well  enough  alone  is  always 
effective.  The  economic  critic  may  see  in  other  directions 
abundant  explanation  of  our  well-being,  and  may  say  that 
a  country  with  such  resources,  such  institutions,  and  such  a 
population  would  have  prospered  under  any  commercial 
policy.  But  the  fact  of  prosperity  tells  powerfully  in  favor 
of  the  legislation  that  in  fact  has  been  followed.  It  is  not 
probable  that  any  substantial  change  of  policy  will  be  made 
until  this  correspondence  has  been  broken.  When  evil  days 
come,  as  sooner  or  later  come  they  doubtless  will,  then  placid 
acquiescence  in  the  existing  order  of  things  will  no  longer 
bolster  up  the  protective  system,  and  the  time  will  be  more 
propitious  for  a  deliberate  overhauling  of  accepted  notions 
and  beliefs. 

In  conclusion,  then,  it  may  be  said  that  the  fundamental 
principle  of  free  trade  has  been  little  shaken  by  all  the  dis- 
cussion and  all  the  untoward  events  of  the  past  half-century. 
But  its  application  is  not  so  easy  and  simple  as  was  thought 
by  the  economists  of  half-a-century  ago.  A  principle  can  be 
stated  in  clear-cut  terms,  and  an  answer  of  yes  or  no  can  be 
given  with  regard  to  it.  The  mode  of  its  application,  how- 
ever, raises  questions  of  pro  and  con,  and  often  involves  a 
balancing  of  conflicting  principles.  The  question  of  prin- 
ciple none  the  less  remains  important,  and  important  for 
practical  purposes.  He  who  is  convinced  that  the  use  of 
alcoholic  liquors  is  overwhelmingly  harmful  may  be  uncer- 
tain, in  the  world  as  it  is,  whether  to  favor  absolute  pro- 
hibition, or  government  management,  or  private  trade  under 
license  and  control.  Yet  if  he  has  the  question  of  principle 
clearly  settled  in  his  mind,  he  will  combat  steadfastly  popular 
errors  about  healthful  effects  of  alcohol  and  will  welcome 


The  Present  Position  of  the  Doctrine  of  Free  Trade      33 

every  promising  device  towards  checking  its  nse.  He  who 
believes  that  war  is  evil  and  wasteful,  and  militarism  pre- 
ponderantly bad  in  its  spirit  and  effect,  may  regretfully 
admit  that  armies  and  navies  must  be  maintained  and  much 
labor  misapplied  in  the  making  and  using  of  instruments 
of  destruction.  Yet  he  will  oppose  every  unnecessary  in- 
crease of  armament,  avoid  every  occasion  for  stirring  others 
to  rivalry  in  warlike  preparation,  and  welcome  every  op- 
portunity for  the  peaceful  settlement  of  disputes  between  na- 
tions.^^  So  he  who  believes  that  international  trade  is  but 
one  form,  and  no  peculiar  form,  of  the  division  of  labor,  and 
that  like  all  division  of  labor  it  is  preponderantly  beneficial  in 
its  effects,  may  admit  that  its  application  in  a  given  country 
raises  problems  not  to  be  disposed  of  by  mere  appeal  to  this 
principle  alone.  ^  Some  of  the  qualifications  have  been  con- 
sidered in  what  has  preceded ;  and  others  will  readily  occur 
to  you,  such  as  the  demands  of  public  revenue,  a  needful  re- 
gard for  vested  interests,  the  political  and  social  effects  of 
trade  within  the  country  and  without.  But  in  considering 
any  question  of  concrete  commercial  policy,  it  is  necessary 
first  to  know  whether  a  restriction  on  foreign  trade  is  pre- 
sumably a  cause  of  gain  or  loss.  Is  a  protective  tariff  some- 
thing to  be  regretted,  for  which  an  offset  is  to  be  sought  in 
the  way  of  advantage  in  other  directions,  or  something 
which  in  itself  brings  an  advantage?  The  essence  of  the 
doctrine  of  free  trade  is  that  'prima  facie  international  trade 
brings  a  gain  and  that  restrictions  on  it  presumably  bring  a 
loss.  Departures  from  this  principle,  though  by  no  means 
impossible  of  justification,  need  to  prove  their  case;  and  if 
made  in  view  of  the  pressure  of  opposing  principles,  they  are 
matter  for  regret.  In  this  sense,  the  doctrine  of  free  trade, 
however  widely  rejected  in  the  world  of  politics,  hold^  its  own 
in  the  sphere  of  the  intellect. 


II 

ABKAHAM  LI:N^C0L:N^  ON  THE  TAEIFF, 

A    MYTH  ^ 

Those  who  have  followed  the  campaign  literature  on  the 
tariff  during  recent  years  will  have  become  familiar  with  a 
phrase  attributed  to  Abraham  Lincoln.  The  following  ver- 
sion is  taken  from  Curtiss's  Industrial  Development  of  Na- 
tions (1912),  a  pretentious  three-volume  publication,  in  which 
are  collected  indiscriminately  all  sorts  of  protectionist  ar- 
guments.    Under  a  portrait  of  Lincoln  this  is  printed :  — 

"  I  do  not  know  much  about  the  tariff,  but  I  know  this  much,  when 
we  buy  manufactured  goods  abroad,  we  get  the  goods  and  the 
foreigner  gets  the  money.  When  we  buy  the  manufactured  goods 
at  home,  we  get  both  the  goods  and  the  money."  ^ 

No  reference  is  given  by  Curtiss  to  Lincoln's  writings ; 
nor  is  such  a  reference  given  in  any  place  where  I  have  found 
the  phrase  quoted.  A  careful  examination  of  the  various 
editions  of  Lincoln's  published  works  brings  to  light  nothing 
that  remotely  resembles  it.  There  is  nothing  in  either  of  the 
two  editions  of  his  writings  put  together  by  Nicolay  and  Hay, 
nor  is  there  anything  in  the  so-called  Federal  Edition.     Nico- 

1  From  the  Quarterly  Journal  of  Economics,  August,  1914. 

2  Vol.  iii,  p.  6.  Elsewhere  in  the  book  the  version  is  in  somewhat  dif- 
ferent form :  "  Abraham  Lincoln  said :  '  When  an  American  paid  $20 
for  steel  rails  to  an  English  manufacturer,  America  had  the  steel  and 
England  had  the  $20.  But  when  he  paid  $20  for  the  steel  to  an  Ameri- 
can manufacturer,  America  had  both  the  steel  and  the  $20.' "  Ibid.. 
vol.  ii,  p.  471. —  This  obviously  is  an  anachronism,  since  such  a  thing  as 
a  steel  rail  was  unknown  in  Lincoln's  time. 

34 


Abraham  Lincoln  on  the  Tariff  35 

lay  and  Hay's  Life  yields  nothing  of  the  sort,  nor  any  of 
the  biographies.  So  with  Lincoln's  Speeches  in  Congress 
and  his  Messages  to  Congress.  There  is  no  lack,  to  be  sure, 
of  references  to  the  tariff  by  Lincoln.  He  began  his  political 
career  as  a  Whig,  and  remained  a  protectionist ;  though  during 
the  decade  preceding  the  war  his  political  insight  led  him 
to  put  it  aside  as  an  issue  on  which  to  appeal  to  the  people. 
Those  who  are  interested  in  the  history  of  the  tariff  contro- 
versy may  find  it  worth  while  to  turn  to  some  notes  of  his 
written  in  1846-47,  containing  a  sketch  of  an  address  on 
the  tariff.  Here  the  main  thought  is  that  labor  given  to 
transporting  a  commodity  from  foreign  countries  is  wasted, 
if  the  commodity  can  be  produced  within  the  country  with  as 
little  labor  as  elsewhere.^  This  may  be  an  echo  of  some  of 
Carey's  well-known  utterances ;  and  it  could  be  made  the 
text  for  some  explanation  of  the  principle  of  comparative 
cost.  A  passage  of  a  similar  sort  is  in  an  address  made  at 
Pittsburgh  in  1861,  indicating  that  Lincoln  had  kept  this 
particular  turn  of  reasoning  in  mind.  But  there  is  not 
the  slightest  suggestion  of  the  much-quoted  phrase. 

Xow,  what  is  the  history  of  the  phrase  ? 

The  very  first  mention  which  we  have  found  ^  is  in  1894, 
in  the  American  Economist^  a  weekly  protectionist  sheet  pub- 
lished in  New  York.  In  that  periodical  for  June  29,  1894, 
the  following  is  given  as  having  been  copied  from  the  In- 
dependent of  Howard,  Hlinois,  of  June  9,  1894:  — 

^'  Lincoln's  first  speech  on  the  tariff  question  was  short  and  to  the 
point.  He  said  he  did  not  pretend  to  be  learned  in  political  econ- 
omy, but  he  thought  that  he  knew  enough  to  know  that  '  when  an 
American  paid  twenty  dollars  for  steel  to  an  English  manufac- 
turer, America  had  the  steel  and  England  had  the  twenty  dollars. 

3  Lincoln's  Complete  Works  (2  vol.  edition),  vol.  i,  p.  90.  Cf.  p.  679 
for  the  Pittsburgh  address. 

*  I  say  "  we,"  because  in  the  endeavor  to  trace  the  phrase  to  its  origin 
I  have  had  invaluable  assistance  from  Dr.  D.  M.  Matteson,  well-know^ 
for  his  thoroughness  in  research  on  problems  of  American  history. 


36  Free  Trade,  the  Tariff  and  Reciprocity 

But  when  he  paid  twenty  dollars  for  the  steel   to  an   American 
manufacturer,  America  had  both  the  steel  and  the  twenty  dollars.' " 

In  a  later  issue  (Oct.  26)  of  the  American  Economist  of 
that  same  year,  it  is  stated  that  another  newspaper,  the  Peoria 
Journal,  protested  that  the  ^'  goods  and  money  "  speech  was 
made  at  Kewanee ;  while  still  another  newspaper,  the  Chicago 
Record,  pointed  out  that  this  version  was  not  at  all  in  accord 
with  Herndon's  report  of  Lincoln's  first  speech.^ 

That  the  phrase  was  not  current  before  1894,  at  least  in  its 
attribution  to  Lincoln,  and  probably  was  not  known  at  all, 
is  indicated  by  its  absence  from  those  collections  of  opinions 
of  "  the  fathers  "  which  form  a  familiar  part  of  the  protec- 
tionist stock  in  trade.  It  is  not  to  be  found  in  Stebbins' 
American  Protectionist's  Manual  (1883)  ;  though  Lincoln 
is  there  mentioned  as  being  ^'  in  favor  of  a  high  protective 
tariff."  Nor  is  it  in  a  tract  published  in  1892  by  the  Ameri- 
can Iron  &  Steel  Association,  under  the  title  The  Testimoyiy 
of  the  Fathers.  The  tract  contains  a  choice  collection  of 
excerpts  from  the  utterances  of  Hamilton,  Jefferson,  Calhoun, 
Webster,  Clay,  even  Fillmore  and  Buchanan ;  but  not  a  word 
from  Lincoln.  Nor  is  it  used  with  any  frequency  for  some 
years  after  its  first  appearance  in  1894.  But  after  1900  it 
turns  up  repeatedly  in  the  file  of  the  American  Economist: 
in  1901,  in  1905,  twice  in  1906,  again  in  1908.^     After  the 

5  Dr.  Matteson  reports  that  Howard,  111.,  appeared  on  the  maps  until 
about  1902;  since  then  a  village  at  the  same  spot  —  a  mere  junction- 
point,  apparently  —  is  named  '*  Lotus"  on  the  map.  It  is  in  the  north- 
west corner  of  Champaign  County,  forty  miles  from  Lincoln's  early  home 
at  New  Salem.  Dr.  Matteson  adds :  "  I  am  forced  to  the  conclusion 
that  the  Hoivard  Independent  is  a  myth,  or  at  least  a  misprint.  Thr> 
post-master  at  I>3tus  writes  me  that  no  paper  has  ever  been  printed 
there;  and  there  is  no  other  town  in  Illinois,  so  far  as  I  have  been  able 
to  discover,  with  which  the  name  Howard  is  associated.  No  Howard 
Independent  was  published  elsewhere  in  the  United  States,  according  to 
the  newspaper  directories  of  1801,  1894-05,  and  the  last  issue." 

6  May  10,  1001;  June  9,  1905;  Feb.  16  and  Dec.  21,  1906;  Dec.  18, 
1908;  Dec.  23,   1910.     The  set  of  the  American  Economist  in  the  Har- 


Abraham  Lincoln  on  the  2'arijf  37 

very  first  appearance,  the  commodity  mentioned  seems  to  be 
invariably  rails  —  sometimes  iron  rails,  sometimes  steel  rails. 
Usually,  a  newspaper  is  quoted  as  having  used  the  phrase  or 
reported  its  use.  Thus,  in  1905,  the  following  is  quoted 
from  the  Worcester  Telegram :  — 

"  Senator  Scott  of  West  Virginia  is  scored  in  some  places  for  quot- 
ing President  Lincoln  in  support  of  the  policy  of  standing  pat  on 
the  Tariff  issue,  and  some  of  the  critics  appear  to  doubt  that  Lin- 
coln ever  used  the  words  attributed  to  him.  The  words  at  least 
are  good  enough  to  have  been  used  by  the  war  President.  Senator 
Scott  says :  '  President  Lincoln  once  remarked  that  if  we  gave 
$30  a  ton  for  iron  rails  made  in  this  country  we  would  have  both 
the  rails  and  the  money,  but  if  we  bought  them  in  England  the 
rails  only  would  be  ours,  while  the  Britishers  would  get  the  cash.' 
.  .  .  Neither  does  it  matter  .  .  .  whether  the  rails  .  .  .  are  iron  of 
the  days  of  Lincoln  or  the  steel  of  to-day." 

In  1908,  again,  the  then  Secretary  of  the  Treasury,  Leslie 
M.  Shaw,  is  quoted  in  the  Economist  as  having  used  the  quota- 
tion in  a  Boston  speech. 

The  first  appearance  for  express  campaign  use  appears  to 
be  in  1901.  The  phrase  is  to  be  found  in  the  Republican 
Campaign  Book  of  that  year.  In  earlier  campaign  books, 
for  1892,  1896,  1900,  it  does  not  appear;  although  in  that  of 
1896  Lincoln  is  cited  as  an  advocate  of  protection.  Evi- 
dently the  phrase  was  not  widely  known  during  these  earlier 
years.  In  the  Campaign  Book  of  1904,  there  is  an  extended 
quotation  from  Lincoln's  tariif  notes  of  1846-47  (referred  to 
a  moment  ago)  and  then  at  the  close  we  find:  — 

"  On  another  occasion  Mr.  Lincoln  is  quoted  "^  as  saying :  ^  I  am 
not  posted  on  the  tariff,  but  I  know  that  if  I  give  my  wife  twenty 
dollars  to  buy  a  cloak  and  she  buys  one  made  in  free-trade  England, 

vard  Library  is  not  complete;  there  may  be  other  references  in  the 
missing  numbers. 

7  Italics  are  mine.  The  guarded  way  in  which  the  passage  is  used 
would  seem  to  indicate  suspicion.  It  does  not  appear  in  the  Republi- 
can Campaign  Handbooks  of   1908  and  of  1912. 


38  Free  Trade,  the  Tarijf  and  Reciprocity 

we  have  the  cloak,  but  England  has  the  twenty  dollars ;  while  if  she 
buys  a  cloak  made  in  the  protected  United  States,  we  have  the  cloak 
and  the  twenty  dollars/  " 

Here,  it  will  be  observed,  '^  a  cloak ''  appears.  In  a  speech 
by  McCleary  of  Minnesota,  in  the  House  of  Representatives, 
April  22,  1904,^  ^'  a  dress  "  and  ''  my  wife "  appear,  with 
the  same  sum  of  $20.  It  may  be  that  the  campaign  book 
version  of  1904  was  taken  from  McCleary's  speech. 

In  1910  the  phrase  appears  conspicuously  in  a  booklet  en- 
titled Story  of  a  Tariff,  published  by  the  American  Protective 
Tariff  League  —  the  organization  which  publishes  the  Ameri- 
can Economist  also.  This  booklet  lauds  the  tariff  of  1909  as 
^'  the  best  tariff  bill  (sic)  the  Republican  party  ever  passed,'' 
and  gives  a  quantity  of  extracts  from  speeches  on  that  meas- 
ure. On  the  inside  cover  page  there  is  printed  in  large  type 
^'  Lincoln's  Tariff  Creed,"  in  these  words :  — 

"  Secretary  Stanton  once  asked  Abraham  Lincoln  what  he  thought 
of  a  Protective  Tariff.  Mr,  Lincoln  replied :  '  I  don't  know  much 
about  the  Tariff,  but  I  do  know  that  if  my  wife  buys  her  cloak  in 
America,  we  get  the  money  and  the  cloak,  and  that  American  labor 
is  paid  for  producing  it ;  if  she  buys  her  cloak  abroad,  we  get  only 
the  cloak,  the  other  country  gets  the  money,  and  foreign  labor  re- 
ceives the  benefit/  " 

It  will  be  observed  that  this  is  somewhat  enriched.  Ameri- 
can labor  and  foreign  labor  are  smuggled  in;  and  not  only 
is  the  wife  introduced,  but  Secretary  Stanton  also.^ 

8  Congressional  Record,  58  Cong.,  2  Session,  appendix,  p.  246. 

9  In  response  to  an  inquiry,  Mr.  W.  F.  Wakeman,  Secretary  of  the 
American  Protective  Tariff  League,  wrote  me  on  June  28,  1914:  "  About 
five  years  ago  I  took  up  this  subject  of  what  Lincoln  really  did  say  on 
the  Tariff  Question  and  found  that  the  extract  as  printed  is  correct.  I 
consulted  the  family  and  every  possible  authority.  I  will  try  to  run 
over  the  original  correspondence  shortly  and  give  you  additional  infor- 
mation if  desired."  But  the  information,  though  asked  for,  has  not  been 
supplied.  Mr.  Wakeman  was  Secretary  of  the  League  in  1894,  and  haa 
been  so  ever  since,  except  in  1900-1901,  when  he  was  Appraiser  in 
New  York. 


Abraham  Lincoln  on  the  Tariff  39 

'Not  the  least  interesting  episode  in  the  history  of  the 
phrase  is  its  voyage  across  the  water  and  subsequent  return 
to  the  United  States.  In  1908^  the  American  Economist  re- 
ports that  a  London  correspondent  has  written :  — 

"  An  interesting  development  has  been  the  appeal  to  Abraham  Lin- 
coln ...  as  the  final  authority  in  an  English  fiscal  controversy. 
...  A  number  of  Unionist  papers  closed  the  controversy  simul- 
taneously by  quoting  the  following  extract  from  a  speech  made  by 
Lincoln  shortly  before  his  death :  '  The  problem  seems  to  me  a 
simple  one.  If  we  adopt  Free  Trade  it  means  that  we  import  our 
goods,  in  which  case  the  foreigner  will  have  our  money  and  the 
work,  and  we  his  goods.  If,  however,  we  adopt  a  system  of  Pro- 
tection, or  a  system  of  safeguarding  our  industries  and  our  working 
classes,  thereby  manufacturing  the  goods  ourselves,  the  result  will 
be  that  we  shall  have  the  goods,  the  money,  and  the  employment.'  " 

It  will  be  observed  that  here  Lincoln  is  supposed  to  have 
made  the  remark  shortly  before  his  death;  whereas  on  its 
emergence  it  was  supposed  to  have  been  made  in  his  first 
speech. 

Very  recently,  the  English  ^'  tariff  reformers "  have 
utilized  it  again.  They  distributed  (apparently  in  the  course 
of  1913)  a  post  card  bearing  within  an  ornamental  scroll 
the  following  printed  text :  — 

^'  I  do  not  know  much  about  the  tariff,  but  I  do  know  this  much : 
when  we  buy  goods  abroad,  we  get  the  goods,  and  the  foreigner  gets 
the  money :  when  we  buy  goods  made  at  home,  we  get  both  the  goods 
and  the  money." —  Abraham  Lincoln. 

This  naturally  led  to  attack  by  free  traders,  in  the  columns 
of  the  Manchester  Guardian.  The  Guardian  in  turn  made 
its  way  to  this  country,  and  thereupon  our  loyal  protectionists 
were  led  to  retort  that  this  shallow  newspaper  "  in  an  un- 
guarded moment  recently  allowed  its  finespun  theory  of  free 
trade  to  come  into  direct  conflict  with  the  protectionist  com- 
mon sense  of  Abraham  Lincoln."  ^^ 

10  See  the  Textile  Record   (Boston),  July,  1913.     I  have  been  able  to 


40  Free  Trade,  the  Tariff  and  Reciprocity 

Finally,  the  phrase  has  descended  to  base  uses  indeed. 
In  recent  issues  of  New  York  newspapers,  a  brand  of  shoes 
is  advertised  as  ^^  made  from  American  materials,  with  home 
labor  and  by  home  capital,''  and  then  follows  the  precise 
passage  quoted  a  moment  ago  from  the  Story  of  a  Tariff  of 
1910,  with  the  interpolations  about  American  labor  and  for- 
eign labor,  and  the  reference  to  Secretary  Stanton.  The 
advertisement,  however,  seems  not  to  have  been  found  ad- 
vantageous. The  advertiser  was  overwhelmed  by  a  host  of 
inquiries,  and  made  a  public  reply  in  which  he  withdrew 
behind  the  shelter  of  the  Protective  League  and  its  publica- 
tions; and  he  refrained  from  continuing  the  advertisement.-^^ 

It  seems  certain  that  the  phrase  is  apocryphal.  There  is 
no  evidence  that  Lincoln  ever  used  it.  Further  search  may 
show  just  how  \i  originated.  Possibly  the  claptrap  about  the 
''  goods  and  the  money  "  was  invented  before  it  was  foisted 
on  Lincoln;  possibly  it  was  ascribed  to  him  at  an  earlier 
date  than  the  first  here  noted  (1894).  By  dint  of  repeti- 
tion it  has  come  to  be  associated  with  Lincoln  almost  as  much 
as  the  cherry  tree  is  associated  with  Washington.  So  crude 
is  the  reasoning  (if  such  it  can  be  called),  so  vulgarly  fal- 
lacious is  the  antithesis,  that  we  must  hope  that  it  will 
cease  to  be  invested  with  the  sanction  of  a  venerated  name.^^ 

secure  little  information  about  the  British  episode.  The  Literary  Secre- 
tary of  the  Tariff  Reform  League  writes  me :  "  We  have  no  post-card 
containing  the  quotation  from  Lincoln,  nor  to  the  best  of  my  knowledge 
have  we  ever  issued  such  a  post-card.  .  .  .  The  quotation  is  of  course 
well  known  to  us,  and  it  is  quite  possible  we  may  have  referred  to  it  in 
our  '  Monthly  Notes,'  though  not  in  any  recent  years."  Another  cor- 
respondent in  England  suggests  that  a  branch  of  the  League  may  have 
circulated  the  card. 

11  The  advertisement  appeared  in  New  York  in  the  Journal  of  Com- 
merce and  the  Times,  May,  1914;  perhaps  in  other  newspapers  also. 
The  advertiser's  answer  to  inquiries  was  in  the  Times  of  May  18. 

12  Since  this  note  was  prepared,  my  attention  has  been  called  to  a 
letter  of  Mr.  Horace  White's  in  the  New  York  Evening  Post  of  April 
10,  1914.  Mr.  White  points  out  that  nothing  like  the  oft-cited  passage 
is  to  be  found  in  Lincoln's  writings,  and  pungently  concludes :     ''  My 


Ahraham  Lincoln  on  the  Tariff  41 


A    SEQUEL  ^^ 

The  note  which  I  published  in  the  August  issue  of  this 
Journal  on  the  tariff  phrase  attributed  to  Lincoln  (getting 
"both  the  goods  and  the  money")  has  stirred  discussion,  as 
is  natural  with  anything  that  concerns  the  great  president. 
Some  further  light  upon  the  origin  of  the  phrase  has  come 
in  consequence.  For  most  of  the  information  which  I  am 
now  able  to  give,  I  am  indebted  to  Mr.  Calvin  W.  Lewis  of 
Brookline,  Massachusetts,  who  first  called  attention  to  some 
of  the  clues  in  contributions  to  the  Boston  Transcript  signed 
with  a  pseudonjTQ,  and  who  has  since  put  at  my  disposal  in 
the  most  obliging  way  the  results  of  his  inquiries. 

It  will  be  remembered  that  the  earliest  appearance  of  the 
phrase,  so  far  as  Dr.  Matteson  and  myself  were  able  to  trace 
it,  was  in  the  American  Economist  for  June  29,  1894,  where 
it  was  stated  to  have  been  copied  from  the  Howard  Independ- 
ent of  June  9,  1894.  The  Howard  Independent  proved  a 
puzzle.  Dr.  Matteson  was  able  to  find  no  trace  of  any  such 
newspaper,  and  concluded  that  it  was  "  a  myth,  or  at  least  a 
misprint."  The  puzzle  was  not  lessened  by  the  failure  of 
the  American  Economist  to  give  any  explanation.  Our  note 
was  brought  to  the  attention  of  the  Economist,  and  some  ref- 
erence has  been  made  in  its  columns  to  Lincoln's  utterances 
upon  the  tariff  and  to  this  particular  m}i:h;  but  no  attempt 
was  made  to  verify,  or  specify  further,  the  source  from  which 
the  phrase  had  come.  A  suspicion  could  not  but  arise  that 
the  phrase  might  have  been  manufactured  by  the  Economist, 
and  that  the  Howard  Independent  was  a  pretense. 

That  suspicion  proves  to  be  quite  without  foundation. 
The  Howard  Independent  is  not  a  myth ;  but,  as  Dr.  Matte- 
son thought  possible,   it  is  —  a  misprint.     It  appears  that 

reason  for  thinking  that  Lincoln  never  said  this  is  that  he  was  not  a 
fool." 

13  From  the  Quarterly  Journal  of  Economics,  February,  1915, 


42  Free  Trade,  the  Tarijf  and  Reciprocity 

there  is  in  Illinois  a  flourishing  town  by  the  name  of  Harvard, 
and  that  a  weekly  newspaper,  the  Harvard  Independent,  has 
been  published  there  for  many  years.  "  Howard  Independ- 
ent "  was  merely  a  misprint  for  "  Harvard  Independent." 
Moreover,  Mr.  Lewis,  through  correspondence  with  the  pres- 
ent editor  of  the  Harvard  Independent,  has  learned  from 
him  that  a  search  in  his  files  brought  to  light,  in  the  issue  of 
the  date  stated,  June  9,  1894,  the  identical  phrase.  It  is 
there,  and  the  American  Economist  copied  it  in  good  faith 
and  with  due  credit.  It  is  not  surprising  that  the  editor  of 
the  American  Economist,  after  the  lapse  of  twenty  years, 
should  have  quite  forgotten  just  how  he  happened  on  the 
phrase,  and  should  now  find  it  as  difficult  to  trace  as  the  rest 
of  us.  Any  suspicion  of  fabrication  on  his  part  was  quite 
without  foundation. 

But  all  this  only  serves  to  push  the  inquiry  one  step  further 
back.     Where  did  the  Harvard  Independent  get  the  phrase  ? 

In  the  works  of  Robert  G.  Ingersoll  there  is  an  oration 
upon  Lincoln,  which  bears  the  date  1894.  In  it  there  is  a 
passage  ^^  which  says  that  Lincoln  was  "  nominated  for  the 
legislature  and  made  a  speech,"  and  that  this  speech  was  in 
favor  of  a  protective  tariff.  Ingersoll  refers  to  it  shortly 
after  as  Lincoln's  first  speech.  After  some  remarks  about 
the  influence  of  manufactures  in  ^'  developing  the  brain  "  and 
^^  giving  wings  to  the  imagination,"  Ingersoll  goes  on  thus: 

"  It  is  better  for  Americans  to  purchase  from  Americans, 
even  if  the  things  purchased  cost  more. 

^^  If  we  purchase  a  ton  of  steel  rails  from  England  for 
twenty  dollars,  then  we  have  the  rails  and  England  the  money. 
But  if  we  buy  a  ton  of  steel  rails  from  an  American  for 
twenty-five  dollars,  then  America  has  the  rails  and  the  money 
both." 

1*  See  vol.  Ill,  pp.  127-128  of  the  "  Dresden  Edition  "  of  the  Works  of 
Robert  G.  Ingersoll  (New  York,  1900).  The  oration,  or  lecture,  is  also 
reprinted  as  an  introduction  to  the  seventh  volume  of  "  Lincoln's  Col- 
lected Writings,"  edited  by  Nicolay  and  Hay  (New  York,  1905). 


Abraham  Lincoln  on  the  Tariff  43 

It  will  be  observed  that  this  differs  in  one  significant  par- 
ticular from  the  phrase  attributed  to  Lincoln.  The  purchase 
from  the  American  is  supposed  to  be  at  a  higher  price  than 
that  from  the  Englishman  —  twenty-five  dollars  instead  of 
twenty  dollars ;  the  allegation  is  that  it  is  more  advantageous 
to  buy  at  home,  even  at  the  higher  price. 

There  are  still  other  grounds  for  questioning  whether  this 
passage,  as  it  appears  in  print,  was  the  source  of  our  myth. 
It  is  not  put  by  Ingersoll  in  quotation  marks,  nor  is  there  any 
intimation  or  implication  that  it  is  taken  from  Lincoln. 
Ingersoll  mentions  steel  rails;  if  he  had  wished  to  imply  that 
the  language  was  Lincoln's,  he  would  hardly  have  selected  an 
article  not  known  in  Lincoln's  day.  A  careless  reader  might 
possibly  infer  this  to  be  a  paraphrase  or  quotation  from  Lin- 
coln; but  only  a  careless  one.  More  important  is  the  cir- 
cumstance that  internal  evidence  points  to  its  having  been 
published  at  a  later  date  than  that  of  the  passage  in  the 
Harvard  Independent  (June,  1894).  Immediately  follow- 
ing the  two  paragTaphs  just  quoted  Ingersoll  goes  on: 
*'  Judging  from  the  present  universal  depression  and  the 
recent  elections,  Lincoln,  in  his  first  speech,  stood  on  solid 
rock  and  was  absolutely  right."  "  Recent  elections  "  must 
refer  to  the  elections  of  the  autumn  of  1894.  The  elections  of 
1892  were  not  favorable  for  the  Eepublicans,  but  those  of 
1894  were.  It  is  the  latter  only  to  which  Ingersoll  could 
have  alluded.  The  date  of  the  oration  in  its  printed  form  is 
clearly  later  than  that  of  the  appearance  of  the  phrase  in  the 
Harvard  Independent. 

IN'evertheless,  I  am  disposed  to  believe  that  Ingersoll's  ora- 
tion is  the  fons  et  origo  of  the  myth ;  not  as  it  is  printed  in 
his  works,  but  as  delivered  before.  Ingersoll  was  much  in 
demand  as  a  lecturer  and  political  speaker.  Lor  years  he 
orated  on  the  lyceum  platform  and  spoke  at  political  rallies. 
The  oration  on  Lincoln  doubtless  was  delivered  many  and 
many  a  time  before  it  was  put  into  cold  print.     The  tariff 


44  Free  Trade,  the  Tariff  and  Eeciprocity 

phrase  doubtless  figured  in  it,  and  was  likely  to  stick  in  the 
memory  of  hearers ;  and  in  this  way  the  Harvard  Independ- 
ent probably  got  hold  of  it.  Hearing  it  as  delivered,  with  the 
dramatic  emphasis  of  which  Ingersoll  was  a  master,  the  re- 
porter would  not  fail  to  remember  it,  and  at  the  same  time 
would  naturally  suppose  it  to  be  a  quotation  from  Lincoln,  not 
an  epigram  of  the  orator's.  The  circumstance  that  the  dif- 
ference in  price  between  English  and  American  rails,  which 
is  an  important  part  of  Ingersoll's  version,  does  not  appear 
in  the  Harvard  hidependent  or  in  other  places,  is  entirely 
consistent  with  its  having  had  its  origin  in  a  vaguely  mem- 
orized report  of  spoken  words. 

In  sum,  the  indications  now  seem  to  be  that  Ingersoll's 
oration,  notwithstanding  its  having  appeared  in  print  at  a 
later  date  than  the  first  published  version  of  the  phrase,  is 
nevertheless  the  source.  It  is  precisely  such  as  Ingersoll 
might  have  invented  —  epigrammatic  and  fetching.  No  evi- 
dence has  been  adduced,  or  is  likely  to  be,  that  it  originated 
with  Lincoln  or  was  ever  used  by  him. 


EPILOG 

The  question  has  been  put  to  me  from  one  quarter  and 
another :  why  dismiss  the  argument  in  such  cavalier  fashion  ? 
Be  it  Lincoln's  or  another's,  it  has  an  appearance  of  reason- 
ableness, to  some  persons  even  of  conclusiveness.  That  there 
is  a  strong  appeal  in  this  way  of  putting  the  case  for  pro- 
tection cannot  be  denied.  Is  it  quite  beneath  contempt  ?  Is 
he  who  so  puts  the  case  necessarily  a  fool  'i 

Not  stupidity  has  to  be  dealt  with ;  simply  blank  ignorance. 
One  must  restate  truths  which  ought  to  be  familiar,  as  well 
established  and  in  their  essence  simple. 

Briefly,  the  grounds  for  curt  dismissal  are  as  follows. 
First,  the  main  error  is  to  suppose  that  we  pay  for  imports  by 
sending  out  money ;  that  importation  means  loss  of  money ; 


Abraham  Lincoln  on  the  Tariff  45 

and  that  a  lessening  of  imports  means  a  gain  or  accumula- 
tion of  money.  And  in  the  converse  case,  when  we  export 
or  increase  our  exports,  it  is  an  error  to  assume  that  we  profit 
by  gaining  money  or  accumulating  money.  The  most  ob- 
vious fact  in  international  trade  is  that  imports  are  not  paid 
for  by  sending  out  money,  and  that  we  do  not  get  more 
money  by  lessening  our  imports;  neither  is  money  procured 
by  the  sale  of  exports.  It  is  the  exported  goods  that  pay  for 
those  imported.  A  decrease  of  imports  means  a  decrease 
of  exports,  not  a  corresponding  inflow  of  money,  and  an  in- 
crease of  exports  means  an  increase  of  imports,  not  an  in- 
flow of  money.  True,  each  individual  transaction  is  in 
terms  of  money.  But  the  transactions  are  offset,  and  the 
great  bulk  of  the  payments  are  effected  without  the  remit- 
tance of  cash.  The  details  of  the  course  of  trade  between 
nations,  the  use  of  bills  of  exchange  and  the  rates  of  foreign 
exchange,  the  process  by  which  merchandise  transactions  are 
offset  —  all  this  would  make  a  long  story,  which  must  be 
left  to  the  various  books,  elementary  or  elaborate,  on  the 
mechanism  of  international  trade.  The  topic  is  not  with- 
out its  intricacies  and  difficulties,  but  is  better  understood 
than  almost  any  other  in  the  field  of  economics.  If  there  is 
one  thing  established  in  that  field,  it  is  that  a  country's  goods 
sent  out  of  its  borders  serve  to  pay  for  the  goods  imported; 
they  do  not  bring  in  corresponding  amounts  of  money  or  en- 
able money  to  be  piled  up. 

It  is  true,  and  is  also  a  commonplace,  that  a  chanire  in  im- 
ports or  exports  often  stimulates  an  initial  and  temporary 
movement  of  money  (gold).  Under  the  ordinary  conditions 
of  peaceful  trade,  there  is  a  constant  flow  and  reflow  of  gold 
between  countries,  serving  to  give  a  start  to  the  movement  of 
goods  and  also  to  equalize  balances  of  payment.  But  the 
movement  of  money  is  always  small  in  comparison  with  the 
total  transactions.  It  is  usually  of  minor  importance,  too, 
in  its  effect  on  general  business  conditions;   and  when,  as 


46  Free  Trade,  the  Tarijf  and  Reciprocity 

sometimes  happens,  of  serious  importance,  it  is  so  rather 
as  an  effect  than  as  a  cause,  as  a  symptom  rather  than  as  an 
ill  or  benefit  in  itself.  To  maintain  or  imply  that  gold 
flows  for  each  item  of  imports  or  exports,  or  that  a  cutting 
down  of  imports  results  in  an  unending  enrichment  of  a 
country  through  an  inflow  of  money,  simply  indicates  gross 
ignorance. 

I^ext,  the  inquirer  must  rid  his  thoughts  of  the  very  idea 
of  a  country's  enrichment  by  the  process  of  buying  less  from 
foreigners  or  selling  more  to  them.  This  is  the  most  insidious 
part  of  the  error;  most  insidious  because  it  applies  notions 
familiar  in  private  affairs  to  the  quite  different  problems  of 
public  welfare  and  national  prosperity.  Buy  less  and  sell 
more  —  is  not  this  the  way  an  individual  gets  rich  ?  But  it 
is  not  the  way  in  which  a  nation  gets  rich,  least  of  all  in 
its  trade  with  other  nations.  Produce  more  and  consume 
less  —  so  much  one  might  lay  down.  Thereby  a  nation  does 
indeed  accumulate  capital  and  in  a  sense  grow  rich;  that  is, 
it  does  accumulate  the  capital  indispensable  for  continuing 
prosperity.  But  accumulate  money  by  buying  less  from 
foreign  countries  and  selling  more  to  them  ?  Even  if  a 
country  could  really  achieve  the  result,  and  could  have  the 
money  pouring  in  year  after  year,  it  would  not  become  richer 
in  the  only  sense  in  which  riches  conduce  to  the  general 
welfare.  General  welfare  means  that  we  have  more  of  the 
necessities  and  conveniences  of  life  —  more  food,  clothing, 
houses,  amusements.  Money  is  only  a  symbol,  a  medium  of 
exchange,  a  means  of  buying  the  things  wanted.  All  the 
piling  up  of  money  in  the  world  would  not  make  the  world 
better  off;  and  the  perpetual  piling  up  of  money  in  a  single 
country  would  not  make  that  country  more  prosperous. 

Unfortunately,  our  daily  use  of  money  and  our  daily  pre- 
occupations with  private  business  affairs  render  it  most  nat- 
ural for  the  ordinary  man  to  think  of  riches  as  money,  and 
of  sales  as  the  source  of  profit ;  and  then  to  think  of  the  com- 


Abraham  Lincoln  on  the  Tariff  47 

munity's  affairs  in  the  same  terms  as  of  his  own  affairs. 
The  persistence  of  what  the  economist  calls  the  mercantilist 
view  is  the  most  trying  experience  of  his  profession.  It  is 
in  flat  contradiction  with  truths  established  of  old  and  ac- 
cepted by  every  competent  judge.  Yet  the  familiar  fallacy 
crops  out  everywhere  and  on  all  sorts  of  occasions,  and  seems 
to  be  quite  ineradicable.  Its  deeprooted  hold  explains  the 
vogue  of  the  phrase  ascribed  to  Lincoln ;  explains  why  the 
economist  breathes  a  sigh  of  relief  on  finding  that  the  great 
name  cannot  be  associated  with  it ;  explains,  too,  why  he  dis- 
plays a  touch  of  impatience  when  asked  once  more  to  supply  a 
refutation. 


Ill 

HOW  THE  TARIFF  AFFECTS  WAGES  * 


The  form  in  whicli  the  argument  that  the  tariff  raises 
wages  is  commonly  presented  is  that  of  a  simple  compari- 
son of  money  wages  in  the  United  States  with  money  wages 
in  foreign  countries.  To  most  people  this  is  a  plain  and 
convincing  way  of  putting  it.  If  A  pays  only  fifty  cents  a 
day  to  his  workmen,  and  B  pays  a  dollar  a  day,  it  seems  clear 
that  A  can  undersell  B,  and  that  B  cannot  compete  with  A 
unless  he  reduces  his  wages  to  A's  rates.  The  application 
of  this  reasoning  to  our  protective  duties  is  familiar  enough : 
if  duties  are  lowered,  American  employers  must  either  pay 
lower  wages  or  abandon  the  field. 

This  belief  is  not  merely  widespread :  it  is  something  like 
an  article  of  faith  with  millions  of  Americans,  probably 
with  a  majority  of  our  people.  It  is  congenial  to  the  aver- 
age man's  way  of  thinking  about  economic  matters,  and  is 
as  firmly  held  by  most  of  the  business  men  and  well-to-do 
as  by  the  manual  workmen.  It  has  been  incessantly  dinned 
into  the  ears  of  both  by  protectionists  for  half  a  century. 
That  it  is  a  potent  device  for  bolstering  up  protective  tariffs 
is  shown  b}^  the  fact  that  it  is  utilized,  not  only  in  our  o^vn 
country,  but  in  others  also  —  in  those  with  low  wages  as 
well  as  those  with  high.  In  Germany,  France,  and  Italy, 
the  appeal  for  the  safeguarding  of  the  laboring  man's  wages 
against  foreign  competition  is  as  universal  and  probably  as 

1  Atlantic  Monthly,  September,   1919. 

48 


How  the  Tariff  Affects  Wages  49 

fetching  as  in  the  United  States.  And  the  appeal  is  sincere. 
No  doubt,  manufacturers  and  others  engaged  in  protected  in- 
dustries push  it  for  all  it  is  worth,  but  not  usually  with  con- 
sjcious  demagogy.  Certainly  in  our  own  country  those  who  y 
make  the  appeal  and  those  moved  by  it  believe  in  their  hearts 
that  our  standard  of  living  and  the  very  basis  of  our  pros- 
perity rest  on  the  maintenance  of  a  system  of  high  duties. 
Only  this  will  prevent  the  pauper-paid  laborer  of  Europe 
and  Asia  from  sending  us  cheap  products  which  will  compel 
the  lowering  of  wages  to  a  pauper  standard. 

And  yet  the  verdict  of  economists  is  unanimously  the  other 
way.     Perhaps  unanimous  is  too  strong  a  term;  but  virtual 
agreement  there  is.     I  know  of  no  economist,  certainly  none 
in  England  or  this  country,  who  would  sanction  the  pauper- 
labor  argument.     The  extraordinary  perversion  of  thought 
on  all  international  matters  which  has  resulted  from  the  in- 
flamed  rivalries   of   Continental   countries   during   the   last 
half  century  has  affected  their  economic  thought  on  all  mat- 
ters relating  to  trade;  and  persons  of  academic  repute  can 
be  found  who  give  sanction  to  the  talk  of  the  vulgar.     A 
lack  of  clear  thinking  and  of  honest  statement  has  been  among 
the  many  lamentable  consequences  of  the  mad  struggle  for   • 
power.     Even   so,   no   economist   of   standing  would   main-  fj 
tain  that  a  protective  tariff  is  the  one  decisive  factor  in  mak-  ^ 
ing  a  country's  rate  of  wages  high. 

There  are  familiar  facts  in  plenty  which  run  counter  to 
the  argument.     They  are  familiar,  but,  as  is  so  often  the 
case,  people  fail  to  see  the  significance  of  that  which  stares     > 
them  in  the  face.     A  plain  fact,  universally  kno^vn,  is  that 
we  regularly  export  from  the  United  States  goods  to  the  value  r 
of  billions  of  dollars.     How  can  this  be  if  low-paid  labor  I 
can  always  undersell  high-paid  labor?     Wages  in  terms  of  if 
money,  and  in  terms  of  commodities  also,  are  higher  in  the 
United  States  in  all  occupations,   of  whatever  kind.     Yet 
we  know  that  not  all  employers  of  every  kind  are  undersold 


50  Free  Trade,  the  Tariff  and  Reciprocity 

by  their  foreign  competitors.  The  simple  existence  of  an 
■export  trade  proves  that  they  are  not;  nay,  that  so  far  as 
there  is  any  underselling,  it  is  the  Americans  who  undersell 
the  foreigners. 

We  export  an  extraordinary  quantity  and  variety  of  ar- 
ticles: agricultural  products  like  cotton  and  wheat,  crude 
and  semi-manufactured  products  like  mineral  ores,  timber, 
and  copper,  and  all  sorts  of  manufactured  goods  —  cotton 
fabrics,  iron  and  steel  in  all  stages,  machinery  and  tools.  All 
the  laborers  who  are  employed  in  making  these  exported  ar- 
ticles get  higher  wages  than  those  employed  in  making  similar 
things  abroad.  Yet  the  very  fact  of  exportation  proves  that 
the  articles  are  joJ3r  at^leasT  as  cheaply  as  the  competing 
foreign  articles.  Wages  in  agriculture  are  higher  here  than 
in^England  or  Russia.  Thirty  years  ago,  the  English  agri- 
cultural laborer  got  ten  to  fifteen  shillings  a  week,  or  some- 
where between  ten  and  fifteen  dollars  a  month,  and  out  of 
this  had  to  pay  his  own  board  and  lodging.  In  the  United 
States  a  farm-hand  then  got  eighteen  to  twenty  dollars  a 
month,  and  got  his  board  and  lodging  in  addition.  In  re- 
cent times,  wages  in  both  countries  have  risen  greatly;  yet 
the  difference  in  favor  of  the  American  has  persisted.  The 
Canadian  farmer  has  been  paying  no  less  than  the  American. 
Notwithstanding  this  sustained  higher  rate  of  pay  in  the 
United  States  and  Canada,  agricultural  products  have  con- 
tinued to  be  regularly  exported.  American  and  Canadian 
farms,  while  paying  higher  wages  than  the  British,  are 
sending  their  wheat  to  England,  even  under  the  handicap  of 
high  freight  charges  by  land  and  water.  They  are  meeting 
the  British  farmers  in  the  British  market;  and  meeting  not 
only  the  British,  but  the  Russians,  whose  wages  are  even 
lower. 

So  in  semi-manufactured  and  manufactured  articles. 
Copper-miners  in  the  United  States,  and  the  men  engaged 
in  the  smelting  and  refining  plants,  get  higher  wages  than 


How  the  Tariff  Affects  Wages  61 

men  doing  the  same  work  anywhere  the  world  over;  yet 
American  copper  is  sold  the  world  over.  The  laborers  and 
mechanics  in  the  agricultural  machinery  and  sewing-machine 
industries  get  high  pay;  yet  these  are  great  articles  of  ex- 
port. One  of  the  striking  changes  in  our  international  trade 
during  the  first  decade  of  this  century  has  been  the  enormous 
increase  in  the  exports  of  the  semi-manufactured  forms  of 
iron  and  steel.  The  total  exports  of  structural  steel,  rods, 
rails,  and  wire  rose  to  hundreds  and  hundreds  of  millions  in 
the  years  1912  to  1914  —  years  preceding  the  war,  which 
were  not  affected  by  abnormal  war  conditions. 

Still  another  set  of  facts  may  be  adduced,  not  so  familiar 
as  those  relating  to  our  enormous  export  trade,  yet  familiar 
enough,  and  equally  inconsistent  with  the  belief  that  a  coun- 
try where  wages  are  high  must  be  undersold  under  free 
trade  by  one  where  wages  are  low.  Great  Britain  has  main- 
tained complete  free  trade  since  the  middle  of  the  nineteenth 
century.  The  situation  has  endured  without  change  for  over 
half  a  century  —  ample  time  for  testing  the  matter.  No 
import  duties  have  been  imposed,  except  a  few  of  strictly 
revenue  character  on  articles  such  as  tea  and  coffee.  Com- 
modities of  every  other  kind  have  been  admitted  to  Great 
Britain  from  foreign  countries  free,  competing  on  equal 
terms  with  those  of  British  production.  India,  Japan, 
China,  Turkey,  Italy,  France,  Germany  —  some  of  them 
with  wages  vastly  lower  than  the  British,  all  with  wages  con- 
siderably lower  —  could  send  their  goods  to  England  without 
let  or  hindrance.  India,  with  hundreds  of  millions  of  the 
cheapest  labor,  and  in  closest  commercial  contact  with  Great 
Britain;  Japan,  fast  outgrowing  her  old  industrial  system 
and  keen  to  enter  modem  trade ;  France  and  Germany,  just 
across  the  Channel  and  eager  for  exports  —  ever\'where 
wages  were  lower,  and  in  the  Orient  lower  to  an  extent  that 
would  well-nigh  paralyze  with  fright  an  American  protec- 
tionist contemplating  free  trade  with  such  regions.     And  yet 


52  Free  Trade,  the  Tariff  and  Reciprocity 

England  grew  and  prospered.  British  India,  apparently  the 
most  dangerous  competitor  because  so  directly  linked  with 
the  imperial  country,  so  far  from  threatening  English  indus- 
try, actually  asked  for  protection  against  the  competition  of 
the  English  cotton  manufacturers  who  paid  wages  much 
higher.  So  did  the  French  and  Germans;  their  protective 
measures  were  directed  against  the  country  of  higher  wages. 
And  English  wages,  high  at  the  beginning  of  the  period,  not 
only  remained  high,  but  advanced  markedly  between  the 
middle  and  the  close  of  the  nineteenth  century. 

The  explanation  of  all  such  facts  is  simple.  Turn  to  the 
most  familiar  fact  of  all  —  the  continuing  exports  from  the 
country  of  high  wages  to  those  of  low  wages.  The  workman  .^i 
whose  labor  is  embodied  in  the  exports  is  paid  more;  but  he 
also  produces  more.  The  labor  is  more  effective,  and  the  em-^ 
ployer  can  therefore  afford  to  pay  more  for  it.  Sometimes, 
as  in  the  case  of  wheat  and  iron  and  copper,  the  same  exertion 
produces  a  greater  quantity  of  identically  the  same  article. 
Sometimes,  as  with  our  exported  cottons,  it  produces  a  greater 
quantity  and  also  a  better  quality.  Sometimes  again,  as  in 
the  case  of  our  sewing-machines  and  agricultural  implements, 
the  greater  effectiveness  consists  in  producing  an  article 
which  is  better  made  and  better  adapted  to  its  purposes. 
■The  greater  (or  better)  product  yields  a  larger  gross  return 
to  the  employer,  even  though  not  a  larger  sum  per  unit,  than 
the  return  from  similar  labor  elsewhere ;  and  the  employer 
is  able  to  pay  higher  money  wages.  Xot  only  is  he  able  to 
do  so,  bnt  he  must :  for  thousands  of  employers  compete  with 
each  other  for  laborers ;  and  the  result  must  be  that  wages  will 
be  high  in  some  proportion  to  the  productiveness  of  the 
laborers. 

Beyond  doubt  this  is  the  fundamental  explanation  of  the 
differences  that  prevail  in  the  various  parts  of  the  world. 
The  plain  reason  why  wages  are  very  low  in  India  and 
China,  higher  but  still  meager  in  countries  like  Italy  and 


How  the  Tariff  Affects  Wages  53 

Austria,  comparatively  high  in  England  and  Germany,  and  fj 
highest  of  all  in  the  United  States,  isjojje  foun^  in  the  vary-  // 
ing^prodiictii^fiXiess  of  labor  in  these  countries^ 

The  relation  between~Great  Britain  and  Germany  under 
British  free  trade  illustrates  in  another  way  the  same  simple 
principle.  The  illustration  is  not  so  obvious,  yet  rests  again 
on  broad  facts  of  general  knowledge;  it  involves  no  labored 
investigation.  In  Germany  in  the  middle  of  the  nineteenth 
century,  when  Great  Britain  entered  on  her  free-trade  career, 
wages  were  considerably  lower  than  in  that  country.  Yet, 
it  was  not  Great  Britain's  industries  that  feared  Germany's 
competition,  but  just  the  contrary:  it  was  Germany  that 
adopted  protection  (not  extreme  in  those  days)  designed 
chiefly  to  keep  out  British  manufactured  goods.  As  time 
went  on,  the  trend  of  wages  came  to  be  upward  in  Germany 
as  well  as  in  Great  Britain ;  and  the  rate  of  advance  in  Ger- 
many, though  not  the  actual  level,  was  even  higher.  True, 
wages  in  Germany  did  not  attain  the  British  range,  either  in 
money  or  in  commodities,  at  any  time  up  to  the  Great  War.  j"^ !' 
But  starting  as  they  did  from  a  level  much  lower,  they  showed 
a  more  marked  advance. 

Now,  it  might  have  been  supposed  that,  as  wages  rose  in 
Germany,  this  country  would  have  become  a  less  dangerous 
competitor  in  the  ''  markets  of  the  world,"  which  play  so 
large  a  part  in  the  ordinary  discussion  of  international 
competition.  Not  so:  German  exports  grew  and  German 
competition  came  to  be  feared  during  the  very  period  in 
which  GeiTuan  wages  were  steadily  rising.  And  the  ex-  !_ 
planation  is  again  simple.  One  and  the  same  fact  under-<" 
lies  the  advance  in  wages  and  the  growth  of  exports  —  in- 
creasing effectiveness  of  German  labor,  especially  in  the 
exporting  industries.  The  causes  of  that  increasing  effective- 
ness were  various :  partly  that  Germany,  starting  from  a  low 
.  level,  acquired  with  rapidity  the  methods  and  machinery 
I  of  modern  industry ;  partly  the  exercise  of  care,  persistence, 


54  Free  Trade,  the  Tariff  and  Reciprocity 

and  skill  in  some  branches  of  applied  science;  and  partly 
a  burst  of  leadership  which  was  associated  with  political  and 
military  ambition.  It  matters  not  for  the  present  purpose 
what  the  causes  were.  The  main  thing  is  that  advancing 
wages  proved  no  obstacle  to  exports  and  no  stimulus  to  im- 
ports. 

II 

f/       The  general  proposition  that  a  high  rate  of  wages  is  the  fi 
v"^  result  oia  ^igh  "prodtrctiveness  of  industry  is  simple  and  un- 1 
deniable.     In  a  sense  it  is  superficial ;  it  may  be  said  to  II 
be  a  truism,  though  it  is  one  of  those  truisms  which  are 
constantly  forgotten.     Beyond  doubt  there  remain  questions 
much  more  difficult.     Just  how  and  through  what  channel 
or  mechanism  does   high  general   productivity  lead  to   the 
high  wages?     And  what  determines  the  share  of  the  total 
product,  be  that  great  or  small,  which  shall  go  to  the  laborer, 
the  employer,  the  ovnier  of  capital,  the  owner  of  land  ?     But 
I  these  questions,  the  most  important  and  perhaps  the  most 
I  complex  in  the  field  of  economics,  lie  quite  outside  the  tariff 
|Controversy.     Wide-ranging  as  that  controversy  is,  this  limi- 
tation of  its  scope  seems  to  be  generally   recognized.     In 
popular  discussions  of  the  tariff,  the  relations  of  labor  and 
capital  and  the  distribution  of  wealth  and  income  are  not 
usually  touched,   and  we  need  not  here  concern  ourselves 
with  them.     It  suffices  for  the  purpose  in  hand  to  get   a 
broad  explanation  of  the  differences  in  wages  in  different 
countries,  such  as  we  find  in  the  varying  productiveness  of 
j^ labor.     The  explanation  is  so  simple,  and  the  notion  that  a 
r  high  tariff  causes  general  high  wages  is  so  flatly  contradicted 
j     by  plain  facts,   as  well   as  by   simple   reasoning,   that  any 
Y  elaborated  discussion  of  it  would  call  for  an  apology  if  the 
Xariff-and-wages  argument  were  constantly  repeated. 

In   truth,    few   intelligent    and   unbiased   persons    would 
seriously  argue  that  protective  duties  are  the  chief  cause  of 


How  the  Tariff  Affects   M'ageii  55 

high  wages  in  the  United  States.  But  many  would  doubt- 
less say  that  the  duties  /fre^^-w^  the  ^ages  in  certain  indus- 
tries, and  therefore  at  least  help  to  maintain  them,  not  in 
those  only,  but  in  all  others.  On  the  other  hand,  the  oppo- 
nents of  protective  duties  generally  argue  that  duties  keep 
wages  high  in  no  industry  whatever,  and  that,  when  they 
affect  wages  at  all,  they  always  tend  to  lower  them.  An 
examination  of  these  conflicting  views  will  enable  us  better 
\o  understand  what  is  the  real  situation. 

/-   Begin  with  the  line  of  argument  which  maintains   that  i  < 
high  wages  are  never  the  result  of  duties,  but  always  and 
invariably  of  greater  effectiveness  of  labor  —  a  not  infrequent 
answer  by  the  free  traders  to  the  protectionist  contention. 

To  this^  it  must  be  replied  that  high  wages  Jn  the  United  ^ 
States,  at  present,  are  not  in  all  cases  the  result  of^gTeater  /^ 
productiveness.     If  not  caused  by^  the_tariff  systeni  alone,      ' 
ik&y'^ye  2ii  the  leasT  dependent  on  it.     They  are  the  re- 
sult of  the  tariff  system  in  this  sense :  as  they  are  and  where 
they  are,  they  could  not  be  paid  but  for  that  system.     Many 
workmen  —  not    so    many    as    is    often    supposed,    but    still 
many  —  could  not  be  paid  in  their  present  occupations  what 
they  now  earn  but  for  the  barrier  against  foreign  competi- 
tion.    It  does  not  follow  that,  if  duties  were  removed,  they 
could  not  get  wages  as  high  or  higher  in  some  other  occu- 
pation ;  but,  where  they  are,  their  present  wages  could  not 
be  paid  but  for  the  duties.     ' 

When  a  system  of  protection  has  been  established,  it  is 
not  true,  as  we  are  often  told  by  writers  opposed  to  pro- 
tection, that  high  wages  are  an  invariable  sign  of  produc- 
tiveness, of  great  efl'ectiveness  of  labor.  In  the  United 
States  we  do  have  a  great  and  dominant  range  of  industries 
in  which  labor  is  effective,  cost  is  low,  commodities  are  pro- 
duced with  less  exertion  than  in  other  countries,  and  in  which 
wages  therefore  are  high.  But  side  by  side  with  these,  the 
protective  tariff  has  established  industries  in  which  labor  is 


56  Free  Trade,  the  Tariff  and  Reciprocity 

no  more  productive  than  in  other  countries.  ^  Chinaware  of 
the  finer  grades  supplies  an  example.  If  there  were  no  duty  , 
on  such  ware,  very  little  would  be  made  in  the  United 
States,  perhaps  none.  The  employer  who  should  try  to  make 
it  could  not  afford  to  pay  wages  at  the  high  rates  set  by 
other  more  effective  industries.  It  would  be  imported,  and 
would  be  paid  for  by  the  exportation  of  conmaodities  for 
which  our  conditions  are  more  favorable.  But  so  far  as  the 
individual  employer  and  workman  are  concerned,  the  duties  \^ 
on  chinaware  serve  to  oft'set  the  lack  of  favorable  conditions. 
The  duties  enable  the  ware  to  be  sold  for  more  here  than  ;"' 
it  will  bring  abroad;  it  can  sell  in  this  country  for  the  for- 
eign price  plus  the  duty.  The  employer  is  put  in  the  same 
position  as  if  his  labor  were  more  effective  than  the  foreign 
labor.  The  tariff  enables  him  to  get  more  money  for  his  / 
product  than  the  foreign  employer  gets  for  the  product  of 
the  same  labor  abroad ;  therefore  he  can  pay  higher  wages 
than  are  paid  abroad.  And  he  must  pay  them.  The  stand- 
ard is  set  by  farmer  and  steel-maker  and  implement  manu- 
facturer, who  get  a  larger  gi'oss  return  per  unit  of  labor  than 
their  foreign  competitors,  and  will  under  any  conditions  pay 
higher  wages.  The  manufacturer  who  is  dependent  on  pro- 
tection must  pay  as  much ;  and  he  is  enabled  to  pay  as  much, 
even  though  his  men  produce  no  more  in  quantity  or  quality 
than  those  of  his  foreign  competitors,  because  the  duties 
make  it  possible  for  him  to  sell  identically  the  same  product 
at  a  higher  price  than  prevails  abroad. 

But  the  staunch  protectionist  will  ask:  Given  the  situa- 
tion as  it  now  stands  and  must  be  dealt  with  now,  is  there 
any  other  possible  way  in  which  the  wages  of  these  men 
can  be  kept  high  ?  And  not  only  of  these  men,  but  of  all 
workmen  in  all  fields  of  industry?  Suppose  the  duties  re- 
moved, the  chinaware  industry  wiped  out,  a  quantity  of  other 
industries  to  meet  the  same  fate,  workmen  to  rush  into  those 
more  productive  or  effective  industries  which  free  traders 


How  the  Tariff  Affects  ^Vages  57 

extol  —  what  then  ?  Will  not  the  competition  of  the  added 
numbers  bring  down  wages  all  around,  and  will  it  not  appear 
that  wages  everywhere  will  be  lowered  under  free  trade? 
Can  they  be  kept  at  their  present  high  rates  without  the  aid 
of  protection  ? 

To  these  questions  the  free  trader  has  his  answer  ready. 
Yet  there  are  problems  and  possibilities  which  compel  the 
unbiased  inquirer  to  pause,  and  to  reflect  carefully  before 
giving  an  imqualified  opinion  or  offering  unqualified  advice. 

It  can  be  reasoned,  as  the  free  trader  will  reason,  that, 
if  the  protective  tariff  be  abolished,  the  men  freed  from  the 
protected  industries  will  ultimately  find  their  way  into  the 
others  not  dependent  on  protection,  and  will  there  be  em- 
ployed at  the  same  high  wages  that  now  obtain  —  nay,  at 
wages  probably  higher.  These  industries  will  expand;  and^ 
the  market  for  their  expanding  output  will  be  found  abroad. 
An  extension  of  international  division  of  labor  will  take 
place.  Things  formerly  made  at  home  will  be  imported, 
while  other  things,  which  the  foreigners  formerly  made  for 
themselves,  will  be  supplied  to  them  from  our  exports.  The 
result  will  be  in  the  end  that  we  and  the  foreigners  alike  gain. 
Each  set  of  people  will  produce  the  things  which  it  can  pro- 
duce to  best  advantage,  and  each  will  be  better  off  by  utiliz- 
ing the  best  services  of  the  other.  All  this  is  but  a  restate- 
ment of  the  proposition  that  international  trade  depends  on 
differences  in  the  productiveness  of  industry,  and  largely 
on  differences  that  are  comparative  rather  than  absolute. 
The  material  prosperity  of  the  United  States  is  increased 
if  we  confine  our  labor  and  capital  to  the  commodities  in 
which  we  have  an  advantage  and  in  which  our  employers 
can  afford  to  pay  high  wages.  The  most  effective  way  to  get 
those  things  in  which  our  productiveness  is  no  greater  than 
that  of  foreign  countries  is  to  import  them,  and  to  export  in 
exchange  those  things  in  which  our  productiveness  is  greater. 

The  reasoning  is  beyond  attack,  granting  its  assumptions. 


58  Free  Trade,  the  Tariff  and  Reciprocity 

But  it  assumes,  in  a  country  which  has  long  maintained  a 
protective  system  and  in  which  there  are  many  industries 
dependent  on  that  system,  a  great  shift  and  an  expensive 
transformation.  No  doubt  the  shift  in  the  United  States, 
even  with  the  sudden  adoption  of  complete  free  trade,  would 
not  be  as  vast  as  the  protectionists  commonly  state  or  imply. 
Their  version  of  the  consequences  is  that  every  single  manu- 
facturing plant  would  have  to  be  given  up  —  not  to  mention 
the  even  more  dire  prophecy  that  all  industries  of  every  kind 
whatever  would  crumble  in  universal  ruin.  Just  how  many 
industries  would  succumb,  no  one  can  say;  but  I  am  con- 
vinced that  they  would  form  a  minority  among  the  manu-  ' 
facturing  industries  themselves.  Our  manufacturing  indus- 
tries are  not  in  general  such  bottle-fed  weaklings  as  their 
ardent  supporters  allege.  None  the  less,  the  change  would 
be  absolutely  large.  There  would  be  shut-downs,  attempts  -U^' 
to  meet  the  situation  by  lowering  wages,  strikes,  slow  trans-  ' 
fer  of  laborers  to  other  regions  and  other  industries,  business 
failures,  empty  mills  and  villages,  a  trying  readjustment 
of  prices  and  probably  of  the  general  scale  of  money  wages, 
hard  times  and  uncertain  employment.  -A  considerable  pe- 
riod of  transition  would  have  to  be  gone  through  before  the 
new  and  better  alignment  of  industry  was  finally  reached.  -" 
Those  whose  present  commitments  and  investments  have 
been  made  in  business  ventures  dependent  on  protection 
could  not  be  expected  to  do  otherwise  than  oppose  the  chansre 
with  might  and  main ;  oppose  it  too  with  the  firm  conviction 
that  right  and  justice,  as  well  as  the  need  of  maintaining 
general  prosperity,  were  on  their  side. 

>     Further :  that  expansion  of  exports  which  the  free  trader 
expects,  and  which  he  rightly  regards  as  the  complement  of     ; 
expanding  imports,  will  not  take  place  by  an  easy  or  rapid    ' 
process.     The  ills  which  the  protectionist  predicts  will  ap- 
pear at  once  and  conspicuously ;  whereas  the  predicted  gains    j 
on  the  other  side  yvjJJ  /jppear  so  slowly  as  to  be  recognized  a 


How  the  Tariff  Affects   Wages  59 

only  after  a  considerable  interval.  True,  imports  are  paid 
for  by  exports,  and  cannot  long  continue  unless  so  paid  for. 
But  there  is  no  automatic  connection.  Each  transaction  in 
import  trade  and  in  export  trade  stands  by  itself,  as  Ricardo 
long  ago  remarked.  Exports  will  gi'ow  only  when  they  be- 
}  come  profitable  in  consequence  of  the  relation  between  prices 
of  particular  articles  in  this  country  and  in  foreign  countries, 
and  this  relation  will  not  be  immediately  changed.  The 
economist  may  discern  in  the  troublous  period  of  transition 
the  trend  toward  a  developed  and  presumably  more  beneficial 
state  of  international  exchange.  But  the  average  man  will 
see  only  hard  times  and  business  troubles.  The  case  is  but 
one  of  many  —  the  introduction  of  new  processes  and  im- 
provements is  of  the  same  sort  —  in  which  the  immediate 
eft'ect  of  a  general  economic  change  is  unsettlement  and  de- 
pression. The  ultimate  good  result,  when  it  comes,  is  ac- 
cepted as  a  matter  of  course,  with  no  attention  to  the  causes 
which  brought  it  about.  It  is  in  this  way  that  we  accept 
unfettered  free  trade  throughout  the  length  and  breadth  of 
the  United  States,  rarely  stopping  to  think  what  far-reaphifrg 
consequences  it  has  for  our  material  prosperity.  / 

S(i_g3£at-are  the  difficulties  of  an  abrupt  shift  from  one 
industrial  policy  to  another  • —  the  real  ones,  not  the  imagi- 
nary ones  of  universal  collapse  and  perpetual  ruin  —  that 
no  country,  it  can  be  safely  predicted,  will  ever  adopt  such 
a  ruthless  procedure.  If  a  change  takes  place,  it  will  be  by 
slow  and  gradual  steps;  and  the  first  steps  will  be  for  a 
short  start  in  a  new  direction,  not  at  the  moment  of  much 
consequence.  Meanwhile,  the  bulk  of  the  established  indus- l/y 
tries  will  be  safeguarded.  And  within  the  range  of  the 
industries  thus  protected  it  will  remain  true  that  wages  can 
be  kept  high  only  so  long  as  the  protection  is  maintained. 
And  since  most  persons  jump  from  a  single  thing  which 
they  see  to  sweeping  generalizations,  their  conclusion  will  be 
that  the  tariff  keeps  all  wages  high. 


60  Free  Trade,  the  Tariff  and  Reciprocity 

There  is  still  anotlier  case  which  leads  to  the  same  sort 
of  unwarranted  generalization.  The  drift  of  the  preceding 
reasoning  is  that,  where  the  productiveness  of  a  country's 
industries  at  large  causes  its  rate  of  wages  to  be  high,  that 
high  rate  will  be  transmitted  to  the  protected  industries  which 
could  not  otherwise  afford  them ;  while  yet  in  the  long  run 
no  workmen  anywhere  are  really  benefited  by  protection. 
\But  there  are  conditions  under  which  protection  may  bring 
substantial  and  permanent  advantage  to  some  workmen,  not 
only  in  the  sense  of  keeping  their  wages  up  to  the  general 
level,  but  in  that  of  lifting  them  higher.  These  are  con- 
ditions of  labor  monopoly.  A  tight  union  of  highly  skilled- 
workmen  can  get  wages  above  the  average,  if  it  can  not  only 
keep  the  union  closed  within  the  country,  but  obtain  legisla- 
tion for  keeping  out  foreign  workmen  and  the  products  made 
by  foreigTi  workmen.  Apparently  this  was  achieved,  for 
example,  for  a  considerable  time  by  the  glass-blowers ;  and 
in  olden  days,  for  a  shorter  period,  by  the  iron-^pujjdlers. 
In  both  cases  the  exceptional  advantage  was  wiped  out,  as 
such  advantages  usually  are,  by  new  processes  which  dis- 
pensed with  the  urgent  need  for  the  special  skill.  But  the 
advantage  lasted  during  the  period  of  limited  labor-supply 
a;^d  favoring  industrial  demand;  and  the  tradition  lasted 
Jong  after  the  golden  era  itself. 

The  trade-union  spirit  of  selfish  exclusion  fits  perfectly 
into  the  general  scheme  of  protectionism;  just  as  does  the 
employers'  spirit  of  combination  and  monopoly.  It  is  rare 
that  either  kind  of  combination  succeeds  in  maintaining 
high  gains  permanently  —  either  high  wages  or  high  profits ; 
at  all  events,  experience  proves  that  a  tariff  barrier  will  not 
avail,  unless  other  and  stronger  forces  are  behind.  And  it 
is  to  be  borne  in  mind  that  the  chances  of  effective  monopoly 
are  better  for  the  capitalists  than  for  the  workmen ;  because 
the  general  trend  of  modern  industry  to  large-scale  operations 
works  that  way,  whereas  the  general  trend  toward  equalized 


How  the  Tariff  Affects  Wages  61 

opportunities  among  laborers  works  to  prevent  even  the  high- 
est trade  union  from  holding  a  privileged  position  indefi- 
nitely. ^Nevertheless,  rare  and  insecure  as  are  the  conditions 
under  which  anything  like  monopoly  wages  can  be  secured  by  y/ 
any  set  of  workmen,  the  possibility  and  the  occasional  reali- 
zation strengthen  the  tradition  that  a  high  tariff  leads  to 
high  wages. 

Most  persons,  and  virtually  all  spokesmen  of  the  organ- 
ized workmen,  see  only  one  outstanding  thing  at  a  time, 
and  generalize  therefrom  at  once.  To  them  it  seems  axio- 
matic that  an^L  conditions  which  increase  the  wages,  even 
of  the  smallest  group,  keep  up  the  wages  of  all.  The  well- 
to-do  and  educated  are  entitled  to  no  absolution  on  this  score ; 
they  are  perpetually  and  naively  urging  fallacies  or  half- 
truths  to  justify  this  or  that  arrangement  profitable  to  a 
knot  of  their  own  people. 

But  when  all  is  said,  every  qualification  made,  every  excep- 
tion granted,   the  fundamental   proposition   remains   intact.       i 
^  ^  The  general  rate  of  wages  in  a  country  is  not  made  high  by     j 
iprotection,  and  is  not  kept  high  by  protection.     I  will  quote   ji 
iwhat  I  have  said  elsewhere : 

In  current  discussions  on  the  tariff  and  wages,  it  has  often  been 
alleged  that  in  one  industry  or  another  the  efficiency  or  skill  of 
the  workmen  is  no  greater  in  the  United  States  than  in  England 
or  Germany;  that  the  tools  and  machines  are  no  better,  the  raw 
materials  no  cheaper.  How  then,  it  is  asked,  can  the  Americans 
get  higher  wages  unless  protected  against  the  competition  of  the 
Europeans?  But  it  may  be  asked  in  turn,  suppose  all  the  Ameri- 
cans were  not  a  whit  more  skillful  and  productive  than  the  Euro- 
peans —  perhaps  quite  as  skillful,  but  not  more  so ;  suppose  the 
plane  of  effectiveness  to  be  precisely  the  same  throughout  the  realm 
of  industry  in  the  countries  compared;  how  could  wages  be  higher, 
in  the  United  States?  The  source  of  all  the  income  of  a  com--: 
munity  obviously  is  in  the  output  of  its  industry.  If  its  industry' 
is  no  more  effective,  if  its  labor  produces  no  more,  than  in  another 
community,  how  can  its  material  prosperity  be  greater  and  how 
can  wages  be  higher?     A  high  general  rate  of  real  wages  could  not 


62  Free  Trade,  the  Tariff  and  Reciprocity 

possibly  be  maintained  unless  there  were  in  its  industries  at  large 
a  high  general  productiveness. ^ 


III 

The  general  and  dominant  productiveness  of  American  in- 
dustry —  how  comes  it  about  and  in  what  directions  is  it 
likely  to  be  found  ?  A  full  answer  would  carry  far  beyond 
the  limits  of  the  protective  controversy  proper  —  limits  which 
unfortunately  are  often  passed  in  popular  debate  on  this  sub- 
ject, which  strays  into  any  and  every  phase  of  economic  in- 
quiry. On  the  causes  of  varying  effectiveness  in  industry 
much  might  be  said ;  but  the  essentials  can  be  stated  briefly. 

Those  who  reflect  at  all  on  the  fundamental  causes  of  gen- 
eral productiveness  would  probably  emphasize  two :  marej er- 
tile  land  and  more  efficient  labor.  Both  tell;  yet  others  tell 
also,  and  are  frequently  ignored. 

True  it  is  that  American  agriculture  long  was  the  main- 
stay of  our  prosperity ;  on  the  whole  it  is  so  still.  True  also 
that  we  are  blessed  with  great  stretches  of  fertile  land  in  a 
temperate  zone.  But  the  natural  resources  alone  do  not  ex- 
plain our  favored  position  among  the  nations.  That  position 
is  due  no  less  to  the  intelligence  with  which  the  American 
farmer  has  learned  to  adapt  methods  of  cultivation  in  such 
ways  as  to  get  the  best  yield  from  the  plenty  of  good  land. 
And  he  has  been  powerfully  aided  by  the  inventors  and  busi- 
ness men  who  have  supplied  him  with  agricultural  machinery 
unique  in  its  excellence,  and  by  the  railroad  promoters  and 
builders  who  have  provided  a  transportation  system  which,  as 
regards  long-distance  hauls,  is  also  unique  in  its  excellence. 
The  American  farmer  is  able  to  raise  and  to  bring  to  market 

2  Some  Aspects  of  the  Tariff  Question.  In  the  chapter  from  which 
this  passage  is  quoted,  I  have  considered  more  in  detail  the  causes  of 
differences  in  industrial  effectiveness  between  different  countries;  and 
in  the  volume  at  large  have  taken  up  the  causes  in  specific  American  in- 
dustries (sugar,  iron  and  steel,  textiles). 


How  the  Tariff  Affects  ^yages  63 

more  wheat  per  unit  of  labor  applied  than  his  European  com- 
petitor,  not  only  because  he  has  abundance  of  good  land,  but 
also  because  he  works  more  intelligently,  uses  more  and  better 
machinery,  takes  better  advantage  of  the  plenty  of  land,  and 
gets  his  wheat  to  market  more  cheaply. 

And  —  to  turn  to  an  analogous  case  —  the  copper-miner 
of  the  United  States  produces  more  copper  per  unit  of  labor 
applied  than  the  miner  of  Europe  or  South  America,  not 
merely  because  the  deposits  of  copper  ore  are  richer,  but 
also  and  mainly  because  the  mining  methods  are  better,  the 
machinery  more  perfected,  the  transportation  of  ore  and  ma- 
terials cheaper,  the  dressing  and  smelting  and  refining  proc- 
esses more  advanced,  all  the  advantages  of  large-scale  opera- 
tions better  utilized.  Invention,  ingenuity,  enterprise,  man- 
agement, are  of  a  higher  stamp  than  in  competing  countries. 
The  human  factor  counts  immensely  in  agriculture  and  min- 
ing, as  well  as  in  manufacturing  industries.  And  it  counts 
in  the  whole  complex  of  operations :  in  the  work  of  the  farmer 
who  plows  and  the  miner  who  digs,  as  well  as  in  that  of  the 
,  engineer,  the  inventor,  the  business  man. 

The  reader  may  have  observed  that  in  preceding  para- 
graphs I  have  spoken,  not  of  the  "  efficiency  "  of  labor,  but  of 
its  ''  effectiveness."  Efficiency,  as  the  word  is  commonly 
used,  implies  greater  output  by  the  individual  workman, 
alone  and  by  virtue  of  his  special  excellence  —  gi-eater  physi- 
cal vigor,  better  intelligence,  better  use  of  tools.  Now  in  this 
regard  the  American  of  native  stock  does  excel ;  the  first 
native-born  of  foreign  stock  usually  does ;  even  the  immigi*ant 
may,  under  the  influence  of  example  and  environment.  Most 
important,  however,  is  what  may  be  called,  for  want  of  a 
better  term,  the  general  effectiveness  of  industry  —  the  ac- 
cumulated result  of  .all  the  factors  that  unite  in  making  a 
people's  work  yield  a  given  physical  output.  And  among 
those  factors  a  commanding  place  must  be  assigned  to  direc- 
tion and  management  —  -to  the  business  leaders.  The  busi- 
I 


64  Free  Trade,  the  Tarijf  and  Reciprocity 

ness  men  of  America  who  ^^  make  "  clocks  and  watches,  boots 
and  shoes,  furniture  and  building  hardware,  steel  in  its  semi- 
finished and  more  advanced  shapes,  tools  and  machines  of  all 
sorts  —  to  specify  some  striking  cases  —  turn  out  from  their 
establishments,  with  the  same  capital  and  labor,  more  than 
the  foreigners  do ;  and  this  not  solely,  or  even  primarily,  be- 
cause their  workmen  are  stronger  or  steadier  or  more  skillful,  i 
but  because  of  superior  management.  '  /  | 

When  we  try  to  define,  not  the  physical  causes  of  effect-   ' 
iveness,  but  those  that  rest  on  the  character  and  genius  of  a 
people,    precision    is    impossible.     The    characteristics    that 
most  pervade  a  people  are  often  the  most  difficult  to  explain.^ 
Those  of  tte  Americans  go  with  the  spirit  of  democracy,  the 
universal  tradition  of  a  free  career  for  every  talent,  concep- 
tions of  large  possibilities  that  correspond  to  the  large  scale 
of  the  country,  the  ubiquitous  and  restless  energy  in  money- 
making  —  elements  both  good  and  bad.     Business  schemes, 
business  ambition,  business  leadership,  have  played  a  larger 
part  in  our  social  and  political  development  than  in  that  of 
any  other  country.     Only  in  Great  Britain  is  to  be  seen  any- 
thing comparable.     And  this  has  led  to  a  general  effective- 
ness of  industry,  not  only  wherever  natural  resources  have 
been  abundant,  but  often  where  there  has  been  no  such  favor- 
ing foundation.     The  national  genius  has  led  to  a  high  level 
of  productive  capacity  over  a  wide  range  of  mechanical  in- 
dustries.    By  far  the  greater  part  of  what  are  classed  as 
manufacturing  industries  have  an  inherent  strength.     They  | 
are  able  to  pay  the  American  rate  of  wages,  not  because  they    \ 
are  bolstered  up  by  the  tariff,  but  because  their  output  perHT 
unit  of  labor  is  large.     They  are  among  the  strong  and  self-    i\ 
sufficing  industries,  not  among  the  less  effective  which  are 
upheld  by  those  that  dominate. 

It  is  in  the  large-scale,  standardized  manufacturing  indus- 
tries that  this  strong  position  is  most  often  found.  Any  one 
who  looks  through  tariff  demands  and  debates  will  be  struck 


Haw  the  Tariff  Affects  Wages  65 

by  the  fact  that  competing  foreign  products  are  likely  to  be 
specialties  or  handicraft  articles.  Where  a  thing  is  turned 
out  in  great  quantities,  all  of  a  single  pattern,  the  American 
producer  is  almost  sure  to  hold  his  own.  Sewing-machines, 
for  example,  are  made  in  the  United  States  by  the  thousand 
and  hundred  thousand,  and  are  exported  in  great  quantities 
to  all  parts  of  the  world.  Yet  certain  special  types,  of  which 
a  very  few  are  in  demand  for  unusual  bits  of  stitching,  are 
imported.  Since  only  those  few  can  be  sold  in  any  case,  the 
American  manufacturer  does  not  find  it  worth  while  to  set  up 
the  apparatus  of  molds,  patterns,  machines,  systematized  con- 
tinuous output,  which  he  organizes  for  the  standard  types. 
The  European  maker  is  willing  to  take  orders  for  a  few 
pieees,  and  makes  the  specialized  machines  by  using  a  much 
larger  proportion  of  handicraft-labor. 

Again,  table-knives  are  standardized,  innumerable  dozens 
being  made  of  each  pattern ;  pocket-knives,  on  the  other  hand, 
are  of  infinitely  diverse  patterns,  no  one  marketable  in  great 
quantities.  Hence  table-knives  are  made  in  the  United 
States  unhindered  by  foreign  competition ;  whereas  pocket- 
knives  have  been  steadily  imported  in  face  of  high  duties. 
Among  textiles,  the  more  ornate  and  expensive  fabrics  are 
commonly  imported.  Not  many  yards  of  any  one  such  fabric 
can  be  sold ;  the  Aaaaeriean  producer  does  not  find  its  produc- 
-tion  worth  while.  But  where  there  is  mass  production  of  an 
enormous  yardage,  he  takes  hold  with  success.  His  success 
is  most  conspicuous  in  the  great  range  of  ordinary  cotton 
fabrics,  easily  marketed  by  millions  of  yards,  and  made  as 
cheaply  in  this  country  as  anywhere  in  the  world. 

It  would  give  a  false  picture  to  sketch  in  these  broad  terms 
the  general  traits  of  American  industry  without  c-alling  at- 
tention also  to  the  exceptions.  Often  the  success  of  a  given 
ji^establishment,  or  even  of  an  industry,  is  due  to  that  elusive 
element,  the  personality  of  an  individual.  An  Englishman 
may  devise  a  system  of  highly  standardized  production  for 


66  Free  Trade,  the  Tarijf  and  Reciprocity 

a  given  article.  An  American  may  have  a  bent,  perhaps  an 
artistic  gift,  for  a  specialty.  Sometimes  the  division  of  the 
market  between  domestic  and  foreign  producers  is  quite  in- 
explicable on  any  general  grounds;  it  seems  to  be  a  matter 
of  tradition  or  accident  or  mere  inertia.  Idiosyncrasies  of 
this  kind  are  as  common  as  the  departures  from  the  standard 
type  which  the  biologist  finds  in  the  living  world.  Probably 
not  a  single  generalization  in  economics  can  be  laid  down  to 
which  there  are  not  significant  exceptions.  And  yet  the 
general  propositions  remain  the  significant  ones.  For  the 
present  purpose  these  are:  that  our  country's  high  rate  of 
wages  rests  on  a  high  general  effectiveness  of  industry ;  that 
eifectiveness  is  not  merely  a  matter  of  natural  resources  or 
physical  causation,  but  is  largely  the  product  of  national 
spirit,  temper,  adaptiveness ;  and  that  it  appears  over  a  wide 
range  of  manufacturing  industries,  in  which  the  key-notes 
are  labor-saving  devices,  the  utmost  use  of  elaborated  ma- 
chinery, large-soale  operations,  mass  production. 


IV 

Finally,  a  word  must  be  said  in  criticism  of  an  argument 
with  which  the  free  trader  sometimes  meets  his  opponent. 
He  compares  the  wages  paid  in  protected  industries  with 
those  paid  in  industries  not  protected.  In  the  former  class 
conspicuous  cases  are  adduced  of  wages  below  the  general 
range  and  below  the  rates  in  non-protected  industries;  there- 
fore, the  free  trader  reasons,  protection  cannot  be  said  to 
have  any  effect  in  keeping  wages  up.  Nay,  it  is  sometimes 
argued  that  protection  is  thus  proved  actually  to  bring  them 
down.  Some  years  ago,  when  there  was  a  great  strike  in 
Lawrence,  Massachusetts,  figures  were  cited  to  show  that  the 
operatives  in  the  woolen  mills  got  wages  unusually  low. 
Here,  said  the  opponents  of  protection,  is  an  industry  which 
notoriously  has  the  advantage  of  high  duties  and  yet  pays 


How  the  Tariff  Affects  ^Vages  67 

its  employees  wretched  wages.  How  can  it  be  maintained 
that  protection  benefits  the  workingman  ? 

On  this  issue  judgment  must  be  given  for  the  protection- 
ist. The  free  trader  perhaps  is  fairly  justified  in  using  this 
sort  of  fetching  rejoinder  as  a  tit-for-tat  to  the  harping  on 
tariff  and  wages  which  constitutes  the  campaign  ammunition 
of  the  other  side :  he  may  be  entitled  to  fight  the  devil  with 
fire.  But  the  impartial  judge  must  rule  that  the  facts  are 
misinterpreted,  the  inferences  not  warranted.  In  any  coun- 
try, whatever  the  tariff  system,  and  whether  the  general  level 
of  wages  be  high  or  low,  some  workmen  will  earn  more  than 
the  average  and  some  less.  Differences  in  education  and 
training,  in  skill,  intelligence,  and  character,  will  always 
cause  divergences  from  the  general  scale.  The  range  is  great 
from  the  common  laborer  to  the  highly  skilled  mechanic. 
Tariff  legislation  has  as  little  to  do  with  fostering  or  checking 
these  divergences  as  currency  legislation  or  railroad  legisla- 
tion. Far  more  significant  in  its  bearing  on  these  matters 
is  the  course  of  legislative,  policy  on  immigi-ation,  and  even 
more  important  is  the  education  of  the  masses. 

It  may  indeed  be  alleged  that  the  protected  industries  em- 
ploy the  lower  gTades  of  labor  in  unusually  large  proportions. 
Some  of  them  do  so  —  as  for  example  the  silk  and  woolen 
manufacturers.  But  other  industries  not  dependent  on  pro- 
tection do  so  also,  such  as  iron-  and  steel-making,  formerly  a 
child  of  protection,  but  now  quite  growm  out  of  tutelage,  and 
the  meat-packing  trade,  never  under  tutelage  at  all.  Ameri- 
can business  leaders  have  shown  singiilar  adaptiveness  in 
utilizing  any  and  all  resources  at  their  disposal,  both  the 
natural  and  the  human.  They  have  directed  the  skilled  me- 
chanics to  the  construction  and  operation  and  repair  of  the 
most  complex  machinery ;  they  have  directed  the  drudges  sup- 
plied by  immigration  to  monotonous  but  effective  mass-pro- 
duction. But  there  is  no  clear  evidence  that  the  employment 
of  the  one  class  or  the  other,  or  the  relative  rates  of  pay^  have 


68  Free  Trade,  the  Tarijf  and  Reciprocity 

been  modified  by  the  country's  protective  policy.  Through  it 
all,  the  wages  of  the  lowest  stratum  have  been  higher  in  the 
United  States  than  in  foreign  countries;  and  so  have  those 
of  the  upper  strata.  The  difference  in  favor  of  the  American 
workmen  has  not  indeed  been  on  the  same  scale  throughout. 
The  skilled  mechanic  has  enjoyed,  at  least  during  the  last 
generation,  a  larger  differential  than  the  pick-and-shovel  man. 
But  this  special  advantage  has  appeared  quite  as  much  in  the 
industries  not  dependent  on  protection  as  in  those  that 
are  dependent.  It  is  due  to  general  social  causes  quite  dif- 
ferent from  those  that  bear  on  the  tariff  problems. 

It  is  possible,  nay  probable,  that  in  the  next  generation 
marked  changes  will  take  place  in  this  part  of  the  social 
structure.  The  supply  of  human  cattle  will  be  much 
abridged  by  the  application  of  the  illiteracy  test  to  immi- 
grants, conceivably  by  the  future  application  of  tests  even 
more  narrowly  selective.  Further,  the  tendency  of  democ- 
racy and  of  universal  education  is  toward  lessening  the 
stratification  of  labor;  and  that  tendency  will  be  no  longer 
counteracted,  as  it  has  been  in  recent  decades,  by  a  steady 
congestion  in  the  lowest  stratum  through  immigration.  A 
most  desirable  and  welcome  smoothing  of  the  differences  will 
gradually  result,  opposed  by  the  employers,  opposed  also  and 
bitterly  resented  by  the  semi-aristocratic  crafts,  yet  not  to  be 
resisted.  It  may  not  take  the  form  of  a  lowering  of  the 
craft  wages;  possibly  these  will  simply  remain  stationary, 
while  those  of  the  unskilled  gradually  rise ;  but  some  smooth- 
ing away  of  the  differences  may  be  expected. 

The  development  of  American  manufacturing  industries 
may  be  much  influenced  by  this  social  change.  The  indus- 
tries which  had  been  planned  and  organized  on  the  basis  of 
being  able  to  draw  cheap  common  labor  from  a  vast  reservoir 
will  find  conditions  less  propitious  than  before.  Both  pro- 
tected and  non-protected  industries  will  have  to  adjust  them- 
selves to  altered  conditions.     But  it  would  be  hard  to  say 


How  the  Tariff  Affects  Wages  69 

that  the  adjustment  will  be  greater  or  more  difficult  in  one  set 
than  in  the  other.  Important  though  the  new  situation  will 
be  for  our  social  and  political  problems,  it  is  not  likely  to 
bring  consequences  significant  for  the  protective  controversy. 
To  return  to  the  main  question :  it  is  reduced  again  to  its 
simplest  elements.  Wages  at  large,  and  the  prosperity  of 
the  laboring  class  as  a  whole  and  so  of  the  country  as  a  whole, 
are  not  kept  high  by  protection.  True,  in  those  branches  of 
industry  which  are  really  dependent  on  the  tariff,  the  work- 
men there  engaged  could  not  there  remain,  at  the  current 
high  wages,  if  the  tariff  barrier  were  to  be  removed.  True, 
also,  a  transfer  of  labor  and  capital  to  other  industries  not 
dependent  on  the  tariff  could  take  place  only  with  great  diffi- 
culty and  great  hardship ;  and  here  are  problems  which  the 
free  trader  cannot  lightly  dismiss.  But  none  the  less  it  is  un- 
true that  high  wages  in  general  have  been  caused  by  protec- 
tion, or  are  now  made  possible  only  by  protection.  They  rest 
not  on  that  feeble  prop,  but  on  the  solid  foundation  of  general 
effectiveness  of  industry  —  on  the  resources  of  the  country 
and  the  genius  of  the  people. 


IV 

WAGES  A'NB  PEICES  IN  RELATI0:N'  TO  INTER- 
NATIONAL TRADE  1 

The  main  thesis  of  the  present  paper  is  that  in  considering 
the  working  of  international  trade,  attention  should  be  paid 
more  to  the  range  of  money  incomes,  and  less  to  the  range 
of  prices  than  is  usually  the  case  when  economists  take  up 
this  set  of  topics ;  and  that  in  gauging  the  advantages  which  a 
country  secures  from  international  trade,  we  should  look 
primarily  to  the  range  and  the  variations  of  money  incomes. 

It  is  usually  set  forth  that  the  country  where  prices  are 
highest  gains  most  from  international  trade,  and  the  coun- 
try where  prices  are  lowest  gains  least.  The  range  of  prices 
obviously  enough  is  not  in  itself  of  consequence.  High  prices 
simply  mean  the  use  of  more  counters  in  exchange.  But  in 
buying  imported  commodities  those  whose  domestic  transac- 
tions are  carried  on  with  many  counters  have  an  advantage. 
Foreign  goods  are  not  so  high  in  price,  and  are  procured 
more  easily.  Conversely,  countries  with  low  prices  are  ill 
off  as  regards  imported  goods,  which  are  bought  on  hard  terms 
by  people  whose  scale  of  money  prices  is  low. 

This  statement  of  the  case  would  be  open  to  no  exception 
if  the  words  "  money  incomes  ''  were  used  throughout  when 
stating  the  situation  of  the  people  of  a  given  country.  It  is 
high  money  incomes  that  are  of  consequence  in  international 
trade,  not  high  prices.     In  fact,  a  country  may  have,  not  high 

1  Quarterly  Journal  of  Economics,  August,  1906.  This  paper  is  ad- 
dressed, more  than  any  other  in  the  present  volume,  to  those  conversant 
with  the  lelinements  of  the  theory  of  international  trade.  The  general 
reader  may  prefer  to  pasr  it  by. 

70 


Wages  and  Prices  71 

prices,  but  low  prices,  and  still  be  in  an  advantageous  posi- 
tion as  regards  international  trade.  High  money  incomes  do 
not  necessarily  or  commonly  mean  high  prices.  It  is  by  a 
consideration  of  the  relation  between  money  incomes  and 
prices,  of  the  possibilities  of  divergence  or  parallelism  be- 
tween them,  that  some  contribution  may  perhaps  be  made 
toward  better  understanding  the  phenomena. 

Let  us  consider,  for  this  purpose,  a  country  in  which  wages 
and  other  money  incomes  are  high.  The  United  States,  for 
example,  has  a  high  range  of  money  incomes.  It  is  com- 
monly thought  to  have  also  high  prices.  Let  us  compare  its 
situation  with  that  of  the  European  countries  with  which  it 
trades,  and  ascertain  wherein  it  gains,  and  how  far  its  gains 
are  connected  with  the  prices  of  goods  and  the  money  rates 
of  wages  and  other  incomes.  For  the  sake  of  simplicity,  in 
speaking  of  the  United  States  or  similar  countries,  I  shall  use 
indifferently  the  terms  ^'  money  wages "  and  "  money  in- 
comes,'' leaving  it  to  be  understood  that  not  wages  only,  but 
other  money  incomes  as  well  —  rents,  profits,  interest,  the 
earnings  of  independent  farmers  or  artisans  —  tend  to  be  cor- 
respondingly high. 

Begin  by  recalling  some  of  the  familiar  principles  of  inter- 
national trade.  Under  a  state  of  freedom,  goods  that  are 
imported  and  exported  will  sell  at  approximately  the  same 
prices  the  world  over.  There  will  of  course  be  differences 
from  cost  of  transportation.  Imported  goods  will  sell  at 
prices  higher  than  their  prices  in  the  exporting  countries  by 
the  amount  of  cost  of  carriage.  Sometimes  a  commodity 
that  newly  enters  into  foreign  trade  —  one  that  a  shrewd 
merchant  discovers  to  be  cheap  in  one  country  and  salable 
in  another  —  will  sell  in  the  importing  country  at  a  large 
advance ;  and  doubtless  the  action  of  competition  in  leveling 
profits  and  reducing  such  differences  of  prices  to  the  ''  nor- 
mal ''  point  is  not  so  quick  and  thorough  as  the  economists 
Bve  disposed  to  believe.     But  on  the  whole  we  may  reason  on 


72  Free  Trade,  the  Tariff  and  Reciprocity 

the  assumption  that  under  conditions  of  freedom  those  com- 
modities which  enter  into  international  trade  have  a  com- 
mon price  the  world  over.  The  extraordinary  cheapening  of 
transportation  during  the  last  half -century,  the  easy  transmis- 
sion of  news,  the  perfected  organization  of  markets  and  ex- 
changes, contribute  to  make  this  assumption  a  safe  one  for 
all  the  great  staples.  Customs  duties,  of  course,  are  an  im- 
portant cause  of  differences  in  price ;  of  these  something  more 
will  be  said  presently.  But  the  fundamental  principles  can 
be  best  elucidated  by  tracing  their  operation  under  free  trade. 
Every  country  will  export  those  things  which  are  cheap  in 
its  borders  —  whose  prices  are  so  low  that  they  can  be  shipped 
to  foreign  countries  and  still  sold  at  the  advance  needed  to 
cover  cost  of  carriage.  And  those  things  will  usually  be 
cheap  which  are  produced  with  a  comparatively  small  amount 
of  labor, —  those  in  which  the  effectiveness  of  labor  is  great. 
A  country  with  high  money  wages,  like  the  United  States,  can 
yet  put  goods  on  the  market  (whether  the  domestic  market 
or  the  foreign)  at  low  prices,  if  its  labor  is  productive.  Such 
is  the  familiar  situation  with  our  great  agricultural  staples. 
The  money  incomes  of  those  who  grow  wheat  in  the  United 
States,  whether  the  earnings  of  the  independent  farmers  or 
the  wages  of  the  laborers  whom  they  hire,  are  larger  than  the 
incomes  and  wages  of  wheat-growers  in  other  countries.  But 
the  wheat  can  none  the  less  be  sold  at  a  low  price  in  the 
United  States,  and  can  be  exported  from  the  United  States, 
because  our  labor  is  effective  in  producing  it.  Why  the 
labor  is  effective  is  no  part  of  the  present  inquiry.  One 
cause  clearly  is  the  abundance  of  fertile  land ;  a  cause  no  less 
important  is  the  wide-spread  intelligent  use  of  good  agricul- 
tural machines.  These  very  agricultural  machines  —  to  men- 
tion another  commodity  —  are  largely  exported  from  the 
United  States,  though  the  wages  of  the  workmen  who  fashion 
them  are  high;  because  the  methods  of  making  them  have 
been  greatly  perfected.     To  specify  still  another  case,   the 


Wages  and  Prices  73 

earnings  of  the  negroes  who  grow  cotton  in  our  Southern 
States,  low  as  they  may  be  when  measured  by  ordinary  Amer- 
ican standards,  are  higher  than  those  of  the  fellaheen  in 
Egypt  or  the  ryot  in  India.  Yet  American  cotton  can  be 
sold  as  cheaply  as  that  of  Egypt  or  India.  The  soil  and  cli- 
mate make  the  Southern  negro's  labor  effective,  and  doubt- 
less in  some  degree  a  better  organization  and  direction  of  his 
labor  contribute  also  to  make  it  so. 

All  this  is  but  a  restatement  of  the  principle  that  a  coun- 
try will  export  those  things  in  which  it  has  a  comparative  ad- 
vantage. The  exposition  of  that  principle,  as  it  is  usually 
found  in  the  books  on  economics,  would  be  simpler  and  more 
telling  if  it  were  made  clear  (the  common  form  of  statement 
fails  to  make  it  so)  that  the  things  in  which  a  country  has  a 
"'  comparative  advantage  "  are  those  which  are  likely  to  be 
low  in  price.  International  trade,  like  all  trade,  though 
fundamentally  a  matter  of  barter,  is  proximately  a  matter  of 
price.  A  country  sells  abroad  those  things  which  it  can 
produce  at  low  prices  at  home.  Ordinarily,  those  things  are 
produced  at  low  prices  at  home  in  which  the  country's  labor 
is  effective. 

Proceed  now  to  the  next  stage:  what  will  be  the  range  of 
prices  for  those  commodities  w^hich  do  not  enter  into  the 
sphere  of  international  trade  —  those  which  are  not  exported 
or  imported,  but  are  bought  and  sold  solely  within  the  coun- 
try ?  The  quantity  of  such  commodities  is  very  great,  and 
in  all  countries  probably  much  exceeds  that  of  commodities 
having  a  world  range  of  prices.  Many  things  are  too  bulky 
to  be  transported  over  any  considerable  distance  —  as  stone, 
bricks,  timber.  Many  are  perishable,  as  milk,  butter,  eggs, 
fruits,  vegetables.  ]^o  doubt  modern  improvements  in  the 
transportation  of  bulky  goods  and  in  the  preserv^ation  of  those 
that  are  perishable  tend  to  enlarge  the  sphere  of  foreign  trade. 
But  such  things  are  still  sold  mainly  in  their  own  region  and 
at  the  prices  of  their  own  region.     House-room  and  shelter. 


74  Free  Trade,  the  Tariff  and  Reciprocity 

a  most  important  article  of  consumption  and  purchase,  can- 
not be  transported  at  all,  and  so  may  vary  widely  in  price  in 
different  countries.  Some  of  the  articles  used  in  building 
houses  —  boards  and  laths,  doors  and  windows,  locks  and 
hinges  —  may  indeed  be  sent  to  distant  regions.  But  even 
these  are  much  affected  by  the  customs  and  fashions  of  the 
several  countries,  and  are  usually  made  and  sold  on  the  spot 
or  near  it.  A  multitude  of  articles  which  might  conceivably 
be  brought  from  foreign  countries  are  in  fact  made  chiefly 
at  home,  because  of  the  persistent  sway  of  habit  and  tradition. 
Such  are  clothing  and  boots,  tools  and  machines,  wagons  and 
harness.  The  reader's  imagination  will  easily  enlarge  the 
list.  The  prices  of  all  these  things  are  determined  under 
domestic  conditions.  They  do  not  enter  into  Internationa] 
trade,  and  have  no  world  level  of  prices. 

Most  persons  would  say  that  the  prices  of  such  commodities 

—  it  will  be  convenient  to  speak  of  them  as  ^^  domestic  com- 
modities " —  will  be  high  in  countries  where  money  incomes 
are  high  and  low  in  those  where  money  incomes  are  low. 
But  this  by  no  means  follows.  The  range  of  domestic  prices 
in  a  country,  as  compared  with  the  range  of  prices  of  the  same 
things  in  other  countries,  depends  on  the  effectiveness  of  labor 
in  producing  the  domestic  commodities. 

Looking  at  the  United  States  as  our  example,  we  find  some 
things  higher  in  price  than  in  European  countries,  some 
things  lower.     We  know,  of  course,  that  the  exported  articles 

—  wheat,  corn,  flour,  meats,  cotton,  iron,  copper  —  are  as 
cheap,  even  somewhat  cheaper.  But  how  about  domestic 
commodities?  Some  are  dearer,  some  are  cheaper.  Com- 
parison is  often  difficult,  because  the  qualities  of  things  vary ; 
but  every-day  observation  suffices  to  establish  significant  dif- 
ferences. Wheat  and  flour  are  cheaper,  yet  bread  from  the 
bake-shop  is  dearer.  Most  fruits  are  as  cheap  or  cheaper  in 
the  United  States,  especially  when  they  have  been  transported 
some  distance.     In  the  immediate  region  of  fruit-growing, 


Wages  mid  Prices  75 

fruits  are  often  cheaper  in  Europe.  Eggs  are  dearer  in  the 
United  States.  Milk  and  butter  are  usually  dearer  also. 
Bituminous  coal  is,  in  most  parts  of  the  United  States,  as 
cheap  or  cheaper.  Anthracite  coal  is  dear;  but  comparison 
with  a  corresponding  article  in  European  countries  is  not 
easy.  The  simpler  kinds  of  cotton  clothing  are  cheaper. 
Boots  and  shoes  are  as  cheap^  probably  cheaper.  Woolen 
clothing  is  dearer.  Here  the  effect  of  the  duties  on  wool 
must  be  reckoned  with;  but  ready-made  woolen  clothing  is 
not  so  high  in  price  as  that  made  to  order.  Household  furni- 
ture is  cheaper;  hardware  and  kitchen  utensils  are  probably 
also  cheaper  when  due  allowance  is  made  for  quality.  All 
things  that  involve  personal  service  —  cab  fares,  hotel  charges, 
sei*vants'  wages  —  are  markedly  higher  in  price. 

An  interesting  case,  and  one  that  serves  to  bring  out  both 
the  difficulties  of  comparison  and  the  working  of  the  under- 
lying forces,  is  that  of  house-room.  The  amount  that  is  actu- 
ally paid  out  for  house  rent  is,  scale  for  scale  in  the  social 
stratification,  higher  in  the  United  States.  But  in  most 
cases  more  is  got  for  the  money.  The  space  is  ampler,  the 
lighting  better,  the  appurtenances  more  convenient.  Per- 
sons of  the  well-to-do  class  who  spend  a  season  in  Europe 
will  commonly  pay  less  for  house  rent  than  they  would  ex- 
pect to  pay  in  the  United  States,  but  they  are  commonly 
content  with  less  agreeable  and  convenient  accommodations. 
A  significant  difference  is  observable  between  houses  made 
chiefly  of  wood  and  those  built  of  brick  and  stone.  Masonry 
w^ork  is  dearer  in  the  United  States;  wood  work  is  as  cheap 
or  cheaper.  Houses  of  brick  or  stone  cost  more  to  build  than 
in  Europe ;  if  built  of  wood,  they  cost  less.  The  explanation 
is  that  machinery  can  be  applied  to  manipulating  wood  more 
easily  than  to  brick  or  stone.  Given  the  same  efficiency  of 
labor,  the  same  output  per  day  per  man,  and  it  is  evident 
that  if  you  pay  higher  wages  you  must  charge  higher  prices. 
Such  in  the  main  is  the  case  with  brick  and  masonry-  work 


76  Free  Trade,  the  Tariff  and  Reciprocity 

in  the  United  States  as  compared  with  Europe.  Brickmak- 
ing  and  bricklaying,  stone-cutting  and  masonry,  are  done 
chiefly  by  manual  and  artisan  labor,  even  though  in  briok- 
making  and  in  stone-cutting  there  is  probably  in  the  United 
States  somewhat  greater  use  of  power  and  machinery  than  in 
Europe.  Wages  being  higher,  and  the  output  of  labor  no 
greater,  prices  must  be  higher.  Wood  working,  on  the  other 
hand,  from  the  rough-sawn  timber  to  the  last  molding  on  the 
door  or  windows,  is  done  in  the  United  States  with  a  great 
use  of  machinery;  and,  what  is  most  significant,  with  a 
greater  use  of  machinery  and  labor-saving  devices  than  in  any 
other  country.  Labor  is  thus  made  more  effective,  and, 
though  more  highly  paid,  its  product  is  not  necessarily  sold 
at  a  higher  price.  Given  a  sufficient  advantage,  and  the  pro- 
duct will  even  be  cheaper.  If  the  work  on  your  wooden  house 
is  all  done  on  the  spot  by  carpenters,  it  will  be  dearer  in  the 
United  States;  but,  if  the  carpenters  simply  put  together  in 
short  order  the  machine-made  pieces  from  the  saw-mill  and 
factory,  it  will  be  cheaper  in  the  United  States.  The  last- 
named  is  the  way  in  which  the  great  majority  of  houses  are 
built  in  the  United  States  for  persons  of  small  means  or 
moderate  means ;  and  such  houses  are  as  cheap  as  in  Europe 
or  cheaper,  and  the  house  rent  for  them,  quality  and  con- 
venience considered,  is  as  low  or  lower. 

This  explanation  of  the  range  of  house  rents  applies, 
strictly  speaking,  only  to  the  selling  price,  or  capital  value,  of 
the  building  and  improvements.  The  rental  is  compounded 
of  a  return  on  this  investment  and  of  premium  for  the  ad- 
vantage of  the  site,  namely,  economic  rent  proper.  The  first 
of  these  items,  interest  on  capital,  is  affected  by  causes  very 
different  from  those  that  govern  prices  and  wages.  The  rate 
of  interest  may  be  high  where  money  wages  are  low,  and  low 
where  wages  are  high.  In  fact,  however,  the  variations  in 
the  rate  of  interest  among  civilized  countries  are  not  so  great 
that  we  have  here  an  important  qualification  of  our  conclu- 


Wages  and  Prices  77 

sions  as  to  the  causes  acting  on  the  price  of  house-room.  Dif- 
ferences in  the  cost  of  building  will  affect  this  part  of  the 
rental  much  more  than  differences  in  the  rate  of  interest. 
As  to  economic  rent,  the  case  is  simpler:  this  return  may  be 
expected  to  vary  pari  passu  with  money  incomes.  To  apply 
the  familiar  theorem,  rent  is  the  result  of  price,  and  not 
among  the  causes  of  price.  Where  the  general  range  of 
wages  and  of  incomes  is  high,  the  amount  that  will  be  paid 
for  an  advantageous  or  indispensable  site  will  be  correspond- 
ingly high.  Hence,  looking  at  all  the  elements  of  the  case, 
we  are  prepared  to  learn  that  the  rents  of  tenements  in  ]N'ew 
York  City  are  high.  The  investment  in  them  is  heavy. 
Their  brick  work  is  done  by  highly  paid  artisans,  with  little 
use  of  labor-saving  machinery.  A  crowded  population,  with 
a  high  range  of  money  incomes,  causes  economic  rent  to  rise 
to  portentous  heights.  In  smaller  cities  and  in  the  suburbs 
of  most  larger  cities,  on  the  other  hand,  modest  wooden 
houses  for  artisans  are  cheap.  Economic  rent  enters  little, 
and  the  cost  of  building  is  comparatively  low. 

Similar  reasoning  can  be  applied  to  the  rental  of  business 
structures.  The  modem  steel-frame  office  building  in  the 
United  States  probably  costs  less  per  unit  of  available  space 
than  similar  buildings  in  Europe.  The  brick  or  stone  busi- 
ness structure  of  the  older  type  probably  costs  more.  The 
total  rental  is  a  compound  of  interest  and  economic  rent,  the 
latter  exercising  a  preponderant  influence  on  those  sites  where 
there  is  demand  for  the  enormous  amount  of  floor  space  pro- 
vided in  the  huge  ofiice  building. 

Ordinary  pick-and-shovel  work  costs  more  in  the  United 
States:  sewer-digging,  street-making,  the  grading  of  a  rail- 
way. Wages  are  higher,  and,  man  for  man,  no  more  is  ac- 
complished or  little  more.  It  is,  indeed,  often  said  that  the 
efiiciency  of  common  labor  is  greater  in  the  countries  of 
higher  wages:  the  laborer,  getting  more  food,  can  do  more 
work.     There  is  doubtless  truth  in  the  assertion,  when  com- 


78  Free  Trade,  the  Tarijf  and  Reciprocity 

parison  is  made  between  the  wages  and  the  output  of  laborers 
in  starvation  countries,  like  British  India,  and  the  wages 
and  output  of  countries  where  life  is  less  cheap.  But  I  have 
always  been  doubtful  as  to  the  sweeping  applicability  of  this 
sort  of  reasoning.  The  rice-fed  Chinaman  or  Japanese  seems 
to  do  as  much  in  a  day  as  the  beefy  Englishman ;  the  frugal 
Italian  as  much  as  the  extravagant  Irishman.  On  the  whole 
we  may  expect  the  product  of  ordinary  manual  labor  to  cost 
more  (in  money)  in  a  country  like  the  United  States.  No 
doubt  much  work  that  seems  to  be  solely  of  this  kind  is  af- 
fected by  the  degree  and  extent  to  which  machinery  and 
labor-saving  devices  are  used.  The  familiar  apparatus  of 
sewer-construction  in  the  United  States  is  vastly  superior  to 
anything  of  the  sort  in  common  use  on  the  continent  of 
Europe.  The  same  is  true  of  the  railway  contractor's  outfit. 
So  far  as  the  American  engineer  and  contractor  can  secure  by 
such  means  greater  results,  the  high  money  wages  do  not 
entail  high  expenses  and  high  prices. 

Railway  freight  rates  are  on  the  whole  lower  in  the  United 
States.  That  they  should  be  lower  or  as  low,  notwithstand- 
ing the  higher  wages  of  all  railway  employees,  is  clear  proof 
that  the  efficiency  of  railway  operation  in  the  United  States 
is  greater  than  in  Europe.  The  lower  rates  for  freight  and 
the  greater  extension  of  facilities  for  long  distance  traffic  go 
far,  again,  to  explain  the  comparatively  low  prices  of  many 
commodities  —  fruits,  coal,  even  bread-stuffs  and  meats. 
One  great  cause  of  the  general  effectiveness  of  labor  in  the 
United  States  and  of  the  wide  diffusion  of  material  pros- 
perity has  been  the  extraordinary  development  of  the  geo- 
graphical division  of  labor ;  and  for  this  the  widely  ramifying 
railway  net,  and  the  extent  and  cheapness  of  railway  service, 
have  been  indispensable.  Street  railway  fares,  to  instance 
another  curious  case,  are  as  low  or  lower  in  the  United  States. 
Even  at  the  lower  fares,  they  commonly  yield  large  profits. 
The  efficiency  of  labor  must  be  very  much  greater. 


Wages  and  Prices  79 

Retail  prices  —  that  is,  the  spread  between  wholesale  and 
retail  prices  —  present  a  mixed  case.  If  the  operations  of 
the  retail  dealers  in  the  United  States  are  conducted  in  the 
same  way  as  in  Europe,  the  advance  of  retail  prices  over 
wholesale  must  be  greater.  Otherwise  the  earnings  of  the 
retail  dealer  will  not  be  on  the  same  liberal  scale  as  the  wages 
and  earnings  of  the  rest  of  the  community.  But  if  the  retail 
dealer's  work  is  done,  not  in  the  same  way  as  in  Europe, 
but  in  a  more  eifective  way,  he  can  reap  sufficiently  high 
gains  with  no  larger  margin  of  profit.  Both  situations  seem 
to  exist.  The  large  department  store  in  the  United  States  is 
probably  conducted  with  greater  efficiency  and  with  no 
greater  advance  of  retail  over  wholesale  prices  than  in  Eu- 
ropean countries ;  though  the  recent  rapid  growth  of  this  sort 
of  shop-keeping  in  Europe  makes  the  difference  less  than  it 
would  have  been  ten  or  twenty  years  ago.  On  the  other 
hand,  a  great  deal  of  retailing  —  probably  the  greater  part 
of  the  sum  total  of  this  sort  of  work  —  is  still  done  on  a  small 
or  modest  scale.  The  grocer,  butcher,  apothecary,  must  usu- 
ally be  near  his  customer.  This  means  that  the  operations 
are  scattered  and  are  conducted  on  no  large  scale.  In  such 
case  the  advance  of  retail  prices  over  wholesale  —  the  retail- 
er's "  profit " —  is  greater  in  the  United  States.  Hence  it 
may  happen  that  an  article  whose  wholesale  price  is  lower  in 
the  United  States  and  which  is  exported  from  the  United 
States  to  Europe,  may  yet  be  dearer  here  to  the  retail  pur- 
chaser. Expense  of  transporting  the  great  staples  across 
the  ocean  has  been  reduced  to  a  very  narrow  margin,  and 
the  slight  difference  caused  by  this  in  wholesale  prices  may 
be  more  than  balanced  by  the  greater  advance  of  retailer's 
prices  in  the  country  of  higher  money  incomes.  Butcher's 
meat  may  cost  the  consumer  more  in  the  United  States,  even 
though  dressed  beef  be  sent  by  the  shipload  across  the 
Atlantic. 

Persons  of  the  well-to-do  classes  find  the  expenses  of  living 


80  Free  Trade,  the  Tariff  arid  Reciprocity 

higher  in  the  United  States  than  in  Europe;  and  to  their 
mind  there  is  no  question  that  prices  here  are  higher,  and 
higher  in  proportion  to  the  higher  range  of  money  incomes. 
The  explanation  is  partly  that  much  of  their  expenditure  is 
for  personal  services;  partly  that  another  large  fraction  of 
it  is  for  those  articles,  imported  and  other,  which  are  really 
high  in  price;  partly  that  a  higher  scale  of  comfort  and 
luxury  has  been  established  by  prevalent  prosperity.  The 
items  that  are  most  conspicuously  dear  in  the  United  States 
and  cheap  in  Europe  are  the  various  kinds  of  service  —  do- 
mestics, cabs,  hotels.  Where  the  range  of  wages  is  high, 
these  things  are  expensive.  Wages  for  domestic  service  are 
particularly  high  in  the  United  States,  because  the  spirit  of 
democracy  makes  the  occupation  distasteful.  Again,  the  ex- 
penditure of  prosperous  Americans  at  home  is  directed  in 
large  degree  to  the  less  hackneyed  and  less  common  articles  — 
to  the  hand-made  things  rather  than  the  machine-made 
things.  The  hand-made  things  are  dear  in  a  country  where 
money  wages  are  high.  Clothing  made  to  order  is  dear, 
though  ready-made  clothing  is  by  no  means  dear  in  the  same 
degree.  Factory-made  furniture  is  cheap ;  custom-made  fur- 
niture is  extremely  dear.  Cab  fares  are  high ;  street  railway 
fares  are  low.  Imported  articles  of  course  would  be  no 
higher  in  price  than  abroad,  or  very  little  higher,  were  they 
admitted  duty  free.  Being  subjected  to  heavy  duties,  they 
also  are  expensive.  It  is  probable  that  the  most  effective  part 
of  our  protective  system  is  now  directed  against  the  articles 
made  in  larger  proportion  by  hand  with  the  tool,  and  in  less 
proportion  by  power  with  machinery.  These  are  the  things 
most  likely  to  be  imported  into  the  United  States,  and  most 
enhanced  in  price  by  the  protective  duties.  These  are  often, 
though  by  no  means  always,  the  commodities  bought  by  the 
well-to-do ;  and  thus  there  is  ground  for  saying  that  the  social 
effects  of  the  protective  system  here  are  less  objectionable 
than  in  countries  that  levy  duties  on  the  staples  of  life. 


Wages  and  Prices  81 

In  sum,  it  can  be  said  that  the  United  States,  though  a 
country  of  high  wages,  is  not  a  country  of  high  prices  for 
the  great  mass  of  the  community.  It  is  so  in  large  degree 
for  the  rich  and  well-to-do.  True,  the  artisans  and  working- 
men  and  farmers  have  a  high  scale  of  living,  for  they  have 
plenty  to  spend;  but  the  domestic  articles  they  buy  are  on 
the  whole  not  dear.  They  are  not  dear,  because  the  effective- 
ness of  labor  in  making  them  is  not  less  than  that  of  labor 
in  making  the  exported  articles.  Imported  articles  which  are 
duty  free,  like  tea  and  coffee,  are  as  cheap  (barring  cost  of 
carriage)  as  in  foreign  countries;  and  here  also  the  Ameri- 
can gets  the  full  benefit  of  his  higher  money  wages.  So  far 
as  the  protected  articles  are  concerned,  his  advantage  is 
simply  thrown  away. 

What  has  been  said  of  the  United  States,  the  typical  coun- 
try of  high  money  wages,  applies  mutatis  mutandis  to  coun- 
tries of  low  wages.  In  a  country  of  low  money  wages  do- 
mestic prices  may  or  may  not  be  low.  Such  a  country  is 
usually,  though  not  necessarily,  one  with  an  all-around  ineffi- 
ciency of  labor.  Those  articles  as  to  which  its  labor  is  least 
inefficient,  and  which  are  transportable  or  for  other  reasons 
salable  abroad,  will  be  exported.  Though  they  may  be  turned 
out  by  ineffective  labor,  they  can  yet  be  sold  at  the  interna- 
tional price  because  the  money  expenses  of  production  are 
low.  Domestic  commodities  —  namely,  such  as  are  not  ex- 
ported or  imported  —  will  be  comparatively  low  or  high  in 
price,  according  as  labor  in  producing  them  is  eff'ective  or 
ineffective.  The  wages  of  servants  and  other  like  expenses  of 
the  well-to-do  are  sure  to  be  low. 

Our  next  inquiry  is,  what  causes  high  money  wages  ?  The 
answer  in  brief  is  that  those  countries  have  high  money 
wages  whose  labor  is  effective  in  producing  exported  com- 
modities, and  whose  exported  commodities  command  a  good 
price  in  the  world^s  markets.     The  general  range  of  money 


82  Free  Trade,  the  Tariff  and  Reciprocity 

incomes  depends  fundamentally  on  the  conditions  of  inter- 
national trade,  and  on  those  conditions  only.  The  range  of 
domestic  prices  then  follows :  it  is  high  so  far  as  the  output 
of  labor  in  domestic  commodities  is  small,  low  so  far  as  the 
output  of  labor  in  domestic  commodities  is  great. 

The  situation  is  simplest  in  the  case  —  difficult  to  find  in 
the  real  world,  but  instructive  for  illustration  of  the  prin- 
ciple —  of  a  country  having  a  monopoly  of  a  given  article  of 
export  or  set  of  exported  articles.  By  monopoly,  of  course, 
is  here  meant  not  that  the  producers  within  the  country  fail 
to  compete  among  themselves,  but  that  the  producers  of  no 
other  country  compete  with  them.  The  price  of  such  ex- 
ported articles  will  depend,  in  the  manner  with  which  the 
reader  may  be  supposed  familiar,  on  the  equation  of  interna- 
tional demand.  The  more  the  consumers  in  other  countries 
care  for  them,  the  higher  w^ill  their  prices  be  pushed.  The 
less  the  labor  with  which  these  articles  are  produced  at  home, 
the  higher  will  be  the  money  wages  resulting  from  these  high 
prices.  The  higher  money  wages  in  the  exporting  industries 
will  set  the  standard  for  money  wages  in  the  country  at 
large ;  but  the  general  high  wages  may  or  may  not  be  accom- 
panied, as  already  explained,  by  high  domestic  prices. 

Where  a  country  exports  in  competition  with  other  coun- 
tries —  the  well-nigh  universal  case  —  the  same  forces  are 
at  work.  The  prices  at  which  the  exports  are  sold  depend  on 
the  world  demand  for  the  commodity.  In  that  world  de- 
mand, or,  to  speak  more  carefully,  interplay  of  demand,  the 
extent  to  which  the  consumers  in  the  several  countries  care 
for  the  articles  imported  into  them  determines  which  coun- 
tries shall  sell  their  exports  on  advantageous  terms.  Those 
countries  whose  exports  are  in  most  urgent  demand  will  have 
the  greatest  possibility  of  high  money  incomes.  Whether 
that  possibility  will  be  realized  —  whether  they  will  have 
high  incomes,  in  fact  —  depends  on  the  labor  cost  of  their 
exports.     The  wheat  which  is  exported  by  the  United  States 


Wages  and  Prices  83 

and  by  Russia  sells  at  the  same  price ;  but  that  price  means 
large  money  returns  in  the  country  of  machinery,  efficient 
labor,  and  cheap  internal  transportation,  and  low  money  re- 
turns in  the  country  which  lacks  these  advantages.  In  the 
language  of  Mill,^  '^  What  a  country's  imports  cost  to  her  is  a 
function  of  two  variables :  the  quantity  of  her  own  commodi- 
ties which  she  gives  for  them,  and  the  cost  of  those  commodi- 
ties. Of  these,  the  last  alone  depends  on  the  efficiency  of  her 
labor:  the  first  depends  on  the  law  of  international  values; 
that  is,  on  the  intensity  and  extensibility  of  the  foreign  de- 
mand for  her  commodities,  compared  with  her  demand  for 
foreign  commodities." 

Where  a  country  produces  and  exports  specie  —  gold,  let 
us  say  —  the  case  may  seem  to  be  different ;  yet  a  little  con- 
sideration will  show  that  the  forces  at  work  are  the  same  as 
in  countries  producing  other  articles  of  export.  A  gold  min- 
ing country  may  or  may  not  have  a  high  level  of  domestic 
prices.  Gold  is  indeed  a  commodity  which  always  is  readily 
taken  by  foreign  countries.  The  demand  for  it  is  sometimes 
said  to  be  limitless;  more  carefully  stated,  it  is  constant. 
All  the  gold  produced  will  be  taken,  and  will  be  distributed 
over  the  world  among  virtually  all  the  trading  countries,  at 
rates  of  payment  which  will  be  very  slightly  modified  by  any 
annual  or  decennial  increase  in  the  quantity  sent  out  from 
the  mining  countries.  If  now  the  gold  is  produced,  and 
•produced  freely,  with  little  labor  —  if  it  is  cheap  in  that 
essential  sense  —  the  mining  country  will  have  high  money 
incomes.  Such  was  the  case  in  California  and  Australia 
during  the  first  days  of  the  gold  discoveries.  Prices  of  all 
things  were  high  in  those  days ;  for  in  commodities  at  large 
labor  was  by  no  means  productive.  In  a  country  where  gold, 
though  mined,  is  not  produced  under  advantageous  condi- 
tions —  where  the  mines  are  poor  or  mining  methods  at  a 
low  stage  —  money  wages  will  not  be  high  ;  and  the  gold  will 

2  Mill,  Principles  of  Political  Economy^  Book  III,  chap,  xviii.,  §  9. 


84  Free  Trade,  the  Tariff  and  Reciprocity 

not  be  mined  at  all  unless  it  yields  as  large  money  incomes 
as  other  possible  articles  of  export. 

In  the  case  of  a  gold  mining  country  we  may  note  a  quali- 
fication which  indeed  should  be  borne  in  mind  for  all  coun- 
tries and  for  all  commodities:  it  is  to  be  assumed  tkat  the 
exporting  industry  does  not  partake  of  the  character  of  a 
monopoly  ivithin  the  country.  In  the  placer  mining  days  of 
California  and  Australia  any  laborer  with  a  pan  and  a  stock 
of  provisions  could  join  in  the  hunt  for  gold,  and  high  money 
wages  were  a  matter  of  course.  When  more  elaborate  mining 
set  in,  high  wages  still  continued,  so  long  as  the  mining  capi- 
talists competed  among  each  other  for  laborers.  But  if  some 
of  the  mines  were  highly  productive  and  others  much  less  so, 
the  productivity  of  labor  at  the  margin  of  mining  would  fix 
the  range  of  money  wages.  There  might  be  advantageous 
production  and  heavy  exportation  of  specie,  without  a  high 
range  of  wages,  if  the  exports  came  predominantly  from  the 
better  mines.  And  if  the  mines  were  all  owned  and  operated 
by  one  person  or  organization,  the  greatest  richness  and  pro- 
ductiveness need  not  result  in  high  wages.  All  the  treasures 
of  Potosi,  however  little  labor  they  cost  the  wretched  native, 
never  could  bring  him  high  returns,  even  in  money.  And 
similarly,  if  all  the  exporting  industries  of  the  United  States 
were  under  such  control  as  are  the  production  and  refining 
of  petroleum,  then  the  general  range  of  money  wages,  however 
great  the  productiveness  of  labor  and  however  strong  the 
foreign  demand  for  the  articles,  would  not  necessarily  be  high, 
and  certainly  would  be  less  high  than  under  conditions  of 
unrestrained  competition.^ 

3  The  foundation  for  all  such  discussion  as  this  was  laid  by  Ricardo, 
whose  genius  nowhere  shone  so  brilliantly  as  in  hia  illumination  of  the 
theory  of  foreign  trade.  But  Ricardo,  so  far  as  I  know,  referred  only  to 
general  prices  as  being  subject  to  variation  between  different  countries. 
Senior  seems  first  to  have  laid  it  down  explicitly  that  the  range  of 
money  incomes  depends  on  the  conditions  of  foreign  trade  {Lectures  on 
the  Cost  of  Obtaining  Money,  1830,  pp.  13-16).  Mill  spoke  sometimes 
of  high  prices,  sometimes  of  high  incomes,  as  the  result  of  favorable 


Wages  and  Prices  85 

There  is  an  important  sense  in  which  it  is  true  that  a 
country  whose  position  in  international  trade  is  advantageous 
has  not  only  high  money  incomes,  but  high  prices  as  well. 
In  the  preceding  pages,  domestic  prices  have  been  said  to  be 
high  or  low,  if  the  prices  of  given  commodities  are  higher 
or  lower  than  the  prices  of  the  same  commodities  in  other 
countries.  Thus  the  price  of  a  wagon  may  be  spoken  of  as 
high  or  low  in  the  United  States  if  it  is  higher  or  lower  than 
the  price  of  the  same  sort  of  wagon  in  Europe.  Similarly, 
railway  and  street  railway  fares  and  house  rents  may  be 
reckoned  low  if  they  cost  less  money  than  similar  things  in 
Europe.  But  we  may  compare  wagons  and  fares  and  rents, 
not  with  European  rates,  but  with  the  prices  of  the  same 
things  at  a  different  time  and  under  different  conditions  in 
the  United  States.  So  considered,  it  is  obvious  that  they  are 
likely  to  vary  with  wages  and  money  incomes.  They  will 
probably  rise  as  money  wages  rise,  and  fall  as  money  wages 
fall. 

If  we  suppose,  for  example,  that  the  conditions  of  interna- 
tional demand  change  to  the  advantage  of  a  given  country, 
that  its  exports  sell  on  better  terms,  and  that  money  incomes 
in  the  exporting  industries  rise,  we  may  expect  that  the  same 
rise  in  money  incomes  will  spread  to  other  industries.     This 

conditions  of  foreign  trade,  and  did  not  pause  in  his  exposition  to  con- 
sider the  relation  of  money  incomes  and  domestic  prices.  Cairnes  fol- 
lowed Senior,  though  using  different  language,  when  he  said  that  a 
country  was  interested  in  having  "cheap  gold";  by  which  he  clearly 
meant,  though  he  did  not  say  it  in  so  many  words,  high  money  incomes 
— ■  i.  e.,  much  gold  for  little  labor.  Cairnes  also  noted  that  "  cheap 
gold "  did  not  necessarily  mean  high  prices  of  domestic  commodities. 
See  his  Leading  Principles,  Part  III,  chap  v.,  §  1.  In  Bastable's 
Theory  of  International  Trade,  4th  edition,  p.  71,  there  is  a  brief 
paragraph  indicating  that  this  able  thinker  had  reflected  on  the  com- 
plex relations  of  money  incomes  and  prices.  Professor  Edgeworth's 
articles  on  International  Trade  in  the  Economic  Journal,  vol.  iv.,  take 
up  quite  different  aspects  of  the  theory.  I  have  found  nothing  in  the 
writings  of  French  or  German  economists  to  show  that  such  topics  had 
engaged  their  attention  at  all. 


86  Free  Trade,  the  Tariff  and  Reciprocity 

will  necessitate  in  those  other  industries  a  rise  in  prices.  In 
the  exporting  industries  the  higher  wages  will  be  the  result 
of  higher  prices;  but  in  other  industries  higher  prices  will 
be  as  much  a  result  as  a  cause  of  higher  wages.  The  process 
of  adjustment  and  enhancement  will  probably  be  slow  and 
uneven,  and  will  take  time.  In  an  immobile  country,  where 
custom  and  tradition  have  a  strong  hold  on  prices  and  wages, 
it  may  take  a  generation.  Even  in  a  mobile  modem  country, 
it  will  take  years.  But  domestic  prices  will  be  higher  in  the 
end  than  they  would  otherwise  have  been.  This,  no  doubt,  is 
the  sense  which  the  older  economists  really  had  in  mind  when 
they  set  forth  that  a  country  having  favorable  terms  of  inter- 
national trade  would  possess  high  prices.  But  their  mode 
of  stating  the  case  might  be  easily  understood  to  mean  that 
domestic  prices  in  such  a  country  were  higher  than  prices  of 
the  same  things  in  other  countries,  which  is  a  different  propo- 
sition, and,  as  we  have  seen,  a  doubtful  one. 

Further,  it  is  not  certain  that  under  the  conditions  thus 
assumed  domestic  prices  will  rise  at  all.  Pari  passu  with 
the  rise  of  money  wages  due  to  the  country's  better  position 
in  international  trade,  there  may  be  improvements  in  the 
arts  or  the  opening  of  new  resources,  which  will  reduce 
domestic  prices  or  prevent  them  from  rising.  Given  this 
force  in  operation  on  domestic  prices  at  the  same  time  with 
a  turn  in  international  trade  causing  money  incomes  to  rise, 
and  the  parallel  movement  of  wages  and  prices  will  be  broken. 
Such  was  the  general  trend  —  rising  wages  and  falling  prices 
—  through  the  last  thirty  years  of  the  nineteenth  century ; 
it  may  prove  to  be  again  the  trend  before  the  close  of  the 
present  century. 

The  experience  of  the  United  States  during  the  last  quar- 
ter of  the  nineteenth  century  serves  to  illustrate  the  principles 
just  stated,  precisely  as  the  general  range  of  our  domestic 
prices  has  served  to  illustrate  the  relation  between  interna- 
tional trade  and  domestic  prices.     A  striking  phenomenon  in 


Wages  and  Prices  87 

the  intemational  trade  of  the  United  States  during  this  period 
was  the  insistent  demand  of  foreign  countries  for  our  exports ; 
and  at  no  time  was  this  more  striking  than  during  the  closing 
years  of  the  century.  The  main  items  in  our  exports  are 
still  the  great  agricultural  staples:  cotton,  wheat  and  flour, 
other  grains,  meat  and  meat  products.  These  are  necessaries, 
or  articles  of  enjo^onent  so  habitually  in  use  that  they  are 
very  reluctantly  dispensed  with.  The  increase  of  population 
and  the  slow  steady  rise  in  the  standard  of  comfort  the  world 
over,  and  particularly  in  European  countries,  caused  an  un- 
relaxing  growth  in  the  demand  for  them  —  a  demand  check- 
ered indeed  by  the  accidents  of  seasons  and  crops,  and  by  the 
oscillations  of  industrial  activity,  but  on  the  whole  advancing 
without  relaxation.  So  far  as  our  imports  are  concerned, 
some  are  in  similar  strong  demand  on  our  part :  coffee,  sugar, 
tea,  are  insistently  called  for.  But  the  imports  of  manufac- 
tures are  mainly  in  a  different  case.  They  are  articles  easily 
dispensed  with,  more  quickly  dropped  when  their  prices  are 
high  or  times  are  hard,  less  easily  stimulated  to  further  use 
when  their  prices  are  lowered.  All  this  brings  it  about  that 
our  exports  are  more  easily  and  certainly  disposed  of  abroad 
than  imports  are  disposed  of  here.  Hence  specie  tends,  on 
the  whole,  to  flow  to  this  country  (or,  what  comes  to  the  same 
thing,  the  domestic  output  of  specie  is  retained  within  our 
borders),  and  money  wages  and  domestic  prices  tend  to  be 
high.  That  is,  money  wages  tend  to  be  high  as  compared 
with  foreign  countries,  and  domestic  prices  tend  to  be  high 
as  compared  with  what  they  otherwise  would  have  been  in 
our  own  country. 

The  forces  which  have  brought  about  these  consequences 
have  not  acted  with  uniform  pressure.  There  has  been  a 
succession  of  pushes.  Recurrently,  periods  have  come  when 
large  crops  of  cereals  in  the  United  States  have  coincided 
with  short  crops  in  Europe  or  when  the  American  cotton  crop 
has  declined  or  failed  to  gi'ow.     Then  the  insistent  European 


88  Free  Trade,  the  Tariff  and  Reciprocity 

demand  has  made  itself  felt  with  sudden  effect.  Exports 
have  swollen  and  have  exceeded  the  imports ;  specie  has  flowed 
in;  a  period  of  excitement,  rising  prices  and  speculation,  has 
begun.  Such  was  the  nature  of  the  upward  movement  of 
1897-1903.  The  revival  of  activity  after  the  depression  of 
1893-97  was  due  to  the  slowly  gathering  demand  for  the 
staple  exports ;  and  the  maintenance  of  activity  was  due  fun- 
damentally to  the  same  increasing  demand.^  Hence  imports 
of  specie,  retention  of  the  domestic  specie  product,  rising 
wages,  rising  prices.  The  rise  in  money  incomes  was  well- 
nigh  universal.  The  rise  in  domestic  prices  was  less  so,  be- 
cause offset  here  and  there  by  improvements  in  the  arts.  All 
the  demands  of  trade  unions  and  all  the  scales  of  higher 
wages  were  immensely  promoted  by  these  conditions,  if,  in- 
deed, they  were  not  mainly  caused  by  them.  Labor  unions, 
strikes,  trade  agreements,  were  the  mechanism  by  which  the 
fundamental  cause  has  worked  out  its  effect.  That  mechan- 
ism, no  doubt,  has  important  independent  effects  of  its  own; 
but  it  is  not  to  be  supposed  the  sole  force  or  the  strongest 
force  in  operation. 

The  favorable  position  which  the  United  States  thus  has  in 
international  trade  reacts  on  the  effects  of  the  protective  sys- 
tem. That  system  has  checked  the  demand  for  imports,  and 
made  it  more  difficult  for  foreign  countries  to  provide  the 
wherewithal  for  discharging  their  obligations  on  account  of 
the  exports  which  they  want  so  insistently.  The  result  has 
been  that  money  incomes  in  the  United  States,  which  would 
be  high  in  any  case,  have  been  pushed  even  higher ;  and  thus 
domestic  prices  also  have  been  held  higher.  On  the  other 
hand,  the  prices  of  imported  goods  have  been  depressed  ■ — 
either  actually  lowered  or  kept  lower  than  they  would  have 
been  —  and  the  people  of  the  United  States  have  gained  as 

4  See  the  excellent  analysis  of  the  economic  history  of  the  United 
States  during  this  period  lay  A.  D.  Noyes,  in  the  Quarterly  Jov/rnal  of 
Economics,  vol.  xix.,  February,  1905.  Compare  also  the  article  by 
A.  P.  Andrew  in  the  same  journal,  May,  1906. 


Wages  and  Prices  89 

oonsmners  of  imported  goods.  So  far  as  they  have  been  suc- 
cessful in  stimulating  the  domestic  production  of  goods  that 
would  otherwise  have  been  imported  —  that  is,  so  far  as  the 
protective  system  has  achieved  its  avowed  effect  —  this  gain 
has  been  simply  thrown  away,  and  a  loss  has  been  substituted 
for  it.  But  so  far  as  importation  has  continued,  the  gain 
has  been  really  secured.  Many  imports  come  in  over  the 
tariff  barrier.  These  of  course  are  raised  in  price  over  the 
foreign  price  by  the  extent  of  the  duties ;  but  the  treasur)^ 
then  gains  what  the  consumers  pay,  and  other  taxes  are  pre- 
sumably dispensed  with ;  and  the  foreign  price  itself  is 
lower  than  it  would  otherwise  have  been.  As  to  duty-free 
imports,  there  is  obviously  a  clear  gain.  They  are  lower  in 
price,  and  the  money  incomes  for  buying  them  are  higher. 
Whether  the  loss  in  buying  the  home-made  protected  com- 
modities outweighs  the  gain  in  buying  the  commodities  that 
continue  to  be  imported  is  quite  impossible  of  calculation. 
The  ardent  protectionist  might  find  in  this  sort  of  reasoning 
a  tenable  ground  for  supporting  his  policy  in  a  country 
situated  as  the  United  States  has  been;  but  few  protection- 
ists follow  the  strict  logic  of  economics  far  enough  to  per- 
ceive the  advantage  which  they  might  thus  vaunt. 

A  last  word  may  be  said  as  to  the  relation  of  all  this  rea- 
soning to  the  modern  development  of  the  theory  of  value,  and 
more  especially  to  the  question  how  far  value  depends  at 
bottom  on  utility,  how  far  on  sacrifice.  The  Ricardian  as- 
sumption —  tacitly  followed  in  the  preceding  pages  —  was 
that  in  domestic  exchanges  values  and  prices  depended  on 
sacrifice,  on  labor.  Those  commodities,  it  was  supposed, 
whose  labor  cost  was  low  would  be  low  in  price,  and  so  would 
tend  to  be  exported.  But  do  value  and  price  depend  on  labor 
cost  ?  Are  there  not,  to  use  Caimes's  convenient  phrase,  non- 
competing  groups  ?  And  is  not  utility  the  permanent  regu- 
lator of  value  ?     If  so,  what  of  the  reasoning  which  assumes 


90  Free  Trade,  the  Tarijf  and  Reciprocity 

that  effectiveness  and  labor  cost  determine  which  commodities 
shall  be  cheap  in  money,  and  so  shall  be  exported  from  a 
country  ? 

Some  allowance  for  this  turn  in  the  reasoning  was  made  by 
the  older  economists.  Exceptionally  low  wages  in  any  par- 
ticular industry,  it  was  pointed  out,  had  the  same  effect  in 
international  trade  as  low  labor  cost.  Either  served  to  give  a 
comparative  advantage,  and  to  cause  a  commodity  to  take  its 
place  in  the  list  of  exports.  Slave-grown  articles  were  com- 
monly used  to  illustrate  this  exception.  But  an  exception  it 
was  still  thought  to  be.  In  the  main,  labor  cost  determined 
value  within  a  country,  and  so  determined  what  goods  should 
be  exported.  But,  if  there  be  no  free  movement  of  labor 
from  group  to  group,  and  no  correlation  of  capitalists'  ex- 
penses to  labor  cost,  will  not  the  whole  theory  of  international 
trade  need  to  be  overhauled  ? 

The  answer  to  this  question  is  twofold.  In  the  first  place, 
there  probably  is  more  competition  among  laborers  than  the 
bare  assumption  of  non-competing  groups  admits.  Briefly  to 
state  my  own  view  on  this  crucial  matter,  I  do  not  believe 
that  competition  among  workers  is  so  free  as  to  bring  about 
an  equalization  of  reward,  and  to  adjust  wages  to  sacrifice. 
There  are  effective  obstacles  to  free  movement.  There  are, 
in  so  far,  non-competing  groups ;  and  value  is  proximately 
determined  by  utility,  not  sacrifice.  But  the  barriers  be- 
tween groups  are  not  impassable.  The  higher  the  differ- 
ences in  reward,  the  greater  the  number  who  get  over  the 
barriers  and  increase  the  supply  in  the  favorably  situated 
groups.  Hence  labor  cost,  sacrifice,  are  always  in  the  back- 
ground, so  to  speak,  and  prevent  the  sway  of  utility  over 
value  from  being  unqualified.  The  greater  the  deviation  of 
value  from  equivalence  to  sacrifice,  the  less  is  it  likely  to 
persist.  In  the  long  run,  competition  between  workers  ex- 
ercises not  a  dominating,  but  a  correcting  influence. 

However  this  may  be,  there  is  a  second  reason  why  the 


Wages  and  Prices  91 

theory  of  international  trade  does  not  need  on  this  score 
serious  modification.  Goods  are  rarely  made  by  workers  of 
one  grade  only.  The  day  laborer  does  not  make  one  thing, 
the  mechanic  another,  the  engineer  a  third.  They  join  in  the 
combined  labor  applied  to  all  the  various  commodities.  Now, 
if  the  relations  of  the  different  grades  to  each  other  are  the 
same  in  different  countries,  and  if  the  same  combinations  of 
labor  are  used  for  any  one  article,  the  conditions  of  competi- 
tion between  the  countries  are  precisely  the  same  as  if  within 
each  country  labor  cost  alone  determined  value.  If  the  earn- 
ings of  engineers  are  twice  as  high  as  those  of  mechanics  in 
all  the  countries,  and  the  earnings  of  mechanics  twice  as  high 
as  those  of  day  laborers,  and  if,  moreover,  the  same  combina- 
tion of  the  labor  of  all  three  is  used  throughout  in  making 
the  same  commodity,  then  those  things  will  be  cheap  which 
are  produced  in  a  given  country  with  comparatively  little 
labor,  and  those  things  will  be  dear  which  are  produced  with 
comparatively  much.  The  former  will  tend  to  be  exported, 
and  the  latter  will  tend  to  be  imported. 

It  is  not  to  be  supposed  that  there  is,  among  dift'erent  coun- 
tries, such  absolute  identity  either  in  the  relations  of  the 
different  grades  of  labor  as  has  just  been  assumed  or  in  the 
way  in  which  the  grades  are  combined  for  the  operations  of 
production.  Though  the  phenomena  of  social  stratification 
are  on  the  whole  similar  in  the  civilized  countries,  new  and 
old,  there  may  be  important  differences.  A  particular  gToup 
of  workmen  may  be  in  higher  demand  in  one  country  than  in 
another.  Their  wages  may  be  particularly  high  in  the  first 
country.  If  so,  though  their  labor  may  be  efiicient,  its  prod- 
uct will  be  comparatively  dear  in  price.  On  the  other  hand, 
a  particular  kind  of  labor  may  be  so  abundant  as  to  be  cheap 
in  one  country.  Its  labor  may  be  paid  for  on  a  scale  which 
is  low  as  compared  with  the  general  scale  in  that  country; 
and  then  the  effect  is  precisely  the  same  on  international 
trade  as  if  such  labor  were  comparatively  efficient. 


92  Free  Trade,  the  Tariff  and  Reciprocity 

Conditions  of  this  kind  seem  to  have  developed  in  the  Ger- 
man chemical  industry,  and  to  have  constituted  an  important 
factor  in  its  remarkable  development  during  the  period  pre- 
ceding the  war.  Chemists  v^ere  cheap  —  unusually  cheap. 
The  industry  had  at  its  disposal  a  highly  trained  technical 
staff,  at  wages  relatively  low.  The  effect  on  trade  was  the 
same  as  if  the  staff  had  been  unusually  efficient;  the  chemi- 
cal products  could  be  put  on  the  market  at  prices  relatively 
low.  Probably  the  staff  was  in  fact  not  only  cheap,  but  at 
least  as  good  as  in  other  countries.  Either  advantage,  that 
of  cheapness  or  that  of  efficiency,  when  particularly  marked 
in  a  given  industry,  serves  to  promote  the  export  of  that  in- 
dustry's products. 

I  suspect  that  a  similar  situation  has  appeared  in  the 
United  States  in  recent  times  —  a  situation  in  which  a  par- 
ticular kind  of  labor  has  been  paid,  if  not  at  decreasing  rates, 
yet  at  rates  that  have  failed  to  advance  in  accord  with  the 
general  rise  in  money  incomes.  Broadly  speaking,  the  pay 
of  unskilled  manual  labor  did  not  keep  pace  with  the  general 
movement ;  relatively,  it  declined.  Most  money  incomes  ad- 
vanced in  the  United  States,  and  the  incomes  of  skilled  me- 
chanics advanced  very  considerably.  But  the  wages  of  ordi- 
nary day  labor,  and  of  such  factory  labor  as  is  virtually  un- 
skilled, seem  to  have  remained  stationary,  and  sometimes 
seem  even  to  have  fallen.  The  explanation  undoubtedly  is 
that  immigration  on  a  huge  scale  steadily  maintained  the 
supply  of  such  labor.  The  pressure  for  employment  on  the 
part  of  the  newly  arrived  kept  down  the  pay  for  the  simple 
sort  of  work  they  could  turn  to. 

The  consequence  was  that  industries  making  large  use  of 
such  labor  were  in  a  better  situation  than  they  had  been  be- 
fore, and  held  their  own  against  foreign  competition  more 
easily.  The  general  conditions  in  the  United  States  tend  to 
give  a  comparative  advantage  to  those  industries  that  employ 
highly  skilled  labor  in  larger  proportion  —  those  that  use 


Wages  and  Prices  93 

machinery  in  whose  construction  and  operation  such  labor 
plays  a  major  part;  for  it  is  here  that  American  industry, 
taken  as  a  whole,  has  proved  to  have  special  effectiveness,  i.  e., 
a  comparative  advantage.  But  if  unskilled  labor  is  rela- 
tively cheap  —  at  a  greater  discount,  so  to  speak,  than  in 
competing  foreign  countries  —  the  employer  may  still  be  able 
to  use  it  with  profit  in  competition  with  the  foreigners.  One 
of  the  striking  changes  in  the  economic  development  of  the 
United  States  during  the  last  generation  was  the  growth  of 
manufactures  using  such  labor,  the  steady  decline  in  the 
prices  of  their  products,  and  their  lessening  dependence  on 
support  from  the  protective  tariff.  Such  were  the  manu- 
factures of  pottery  in  its  cheaper  grades,  of  silk  goods,  of 
textiles  in  general.  The  cheaping  of  bituminous  coal  and 
of  coke  seems  to  have  been  part  of  the  same  phenomenon. 
The  boasted  advance  of  manufacturing  industries  was  thus 
due  in  some  degree  to  a  change,  not  entirely  welcome,  in  so- 
cial conditions.  No  doubt  other  causes  also  contributed :  the 
discovery  and  utilization  of  great  natural  resources,  improve- 
ments in  methods  and  machinery  more  rapid  than  the  im- 
provements in  foreign  countries,  and  protective  duties  pushed 
up  to  the  highest  limit.  But  it  remained  true  that  the  com- 
parative degradation  of  the  lowest  stratum  in  the  social  struc- 
ture was  a  contributing  factor. 

A  situation  of  this  sort  is  not  likely  to  endure  indefinitely, 
least  of  all  in  a  country  like  ours,  where  the  general  condi- 
tions promote  mobility  of  labor.  Moreover,  legislation  for 
checking  the  continuing  inflow  of  immigrants,  such  as  that 
of  the  illiteracy  test,  tends  to  remove  the  underlying  cause. 
It  would  be  idle  to  speculate  on  the  movements  of  population 
that  will  follow  the  war  in  Europe  or  America,  the  changes 
in  the  rates  of  wages,  the  coming  industrial  conditions.  The 
case,  as  it  stood  for  a  considerable  period,  sers^es  to  illustrate 
how  differences  in  wages,  to  the  extent  that  they  are  more 
marked  in  one  country  than  in  another,  influence  relative 


94  Free  Trade,  the  Tariff  and  Reciprocity 

prices  and  therefore  the  currents  of  international  trade. 
To  sum  up  the  main  thesis:  so  far  as  there  is  great  ef- 
fectiveness of  labor,  there  will  be  low  prices  of  those  among  a 
country's  products  which  come  within  the  sphere  of  interna- 
tional trade,  and  such  products  will  be  exported.  This  much 
is  familiar  doctrine.  Domestic  commodities,  so  far  as  pro- 
duced with  the  same  effectiveness,  will  also  be  low  in  price; 
if  not  so  produced,  will  be  high  in  price.  This  is  less  famil- 
iar doctrine.  And  high  money  wages,  in  the  last  analysis, 
are  the  consequence  not  of  general  effectiveness,  but  of  that 
which  is  found  more  especially  in  the  production  of  exported 
goods. 


V 

HOW  TO  PKOMOTE  FOREIGN  TRADE  * 


It  is  strange  that  trade  between  nations  should  play  so 
large  a  part  in  fomenting  war  and  warlike  spirit.  Trade, 
after  all,  is  the  peaceful  exchange  of  goods;  the  more  ex- 
tended and  far-ramifying  it  is,  the  more  we  should  expect  a 
trend  toward  peace  and  a  decline  of  war.  Yet  rivalry  in 
foreign  trade  is  a  powerful  adjunct  to  the  forces  making  for 
war.  It  leads  unceasingly  not  only  to  aggression  and  con- 
test, but  to  suspicion,  irritation,  diplomatic  intrigues  and 
squabbles.  Doubtless  there  is  exaggeration  in  the  statement 
that  the  struggle  for  trade  is  the  main  and  sufficient  cause  of 
all  modern  wars;  other  factors  are  at  least  equally  potent, 
not  least  among  them  the  inborn  fighting  instinct.  Indeed, 
economic  rivalry  seems  often  to  be  an  unconscious  manifes- 
tation of  the  spirit  of  pugnacious  emulation.  Each  nation 
takes  a  pride  in  being  the  first,  the  victor,  in  everything  — 
in  sport,  in  art,  in  letters,  in  science,  in  war,  and  in  trade 
also.  We  have  to  deal  not  with  a  purely  mercenary  or  ma- 
terial state  of  mind ;  it  is  one  of  pride  and  glory,  not  entirely 
good,  but  surely  not  entirely  bad.  Whether  deemed  base  or 
noble,  the  commercial  phase  of  international  emulation  has 
of  late  contributed  less  to  peace  between  nations  than  to  war. 

Trade  rivalry,  however,  is  fomented  and  embittered  by 
common  misconceptions  about  the  relation  between  foreign 
trade  and  general  prosperity.     Many  persons,  perhaps  most 

1  An  address  delivered  before  the  Chamber  of  Commerce  of  the  United 
States,  at  Chicago,  April  11,  1918. 

95 


96  Free  Trade,  the  Tariff  and  Reciprocity 

persons,  think  of  foreign  trade,  and  especially  of  exports,  as 
being  of  cardinal  importance  to  a  nation.  They  speak  of 
the  export  trade  as  if  it  were  the  one  fundamental  source  of 
prosperity,  and  certainly  believe  it  to  be  a  peculiarly  im- 
portant one.  It  is  regarded  as  the  test  and  measure  of  na- 
tional gain  or  profit,  the  main  thing  to  be  striven  for.  Be- 
fore considering  the  really  important  problems  that  confront 
us,  I  venture  to  call  your  attention  to  the  misconceptions  in- 
volved in  this  opinion  and  to  the  way  in  which  they  add  to 
the  difficulty  of  arriving  at  a  sound  national  policy. 

We  all  know  that  foreign  trade,  and  more  particularly  ex- 
ports to  foreign  countries,  do  not  enrich  the  country  by  the 
process  of  bringing  in  money.  We  know  it,  but  constantly 
forget  it.  ]^o  educated  man  would  put  forth  in  so  many 
words  the  view  that  it  is  the  balance  of  trade,  or  the  differ- 
ence between  exports  and  imports,  that  signifies  for  a  coun- 
try's prosperity.  But  many  educated  men  fall  into  a  way 
of  talking  in  which  this  view  is  implied.  To  the  man  on  the 
street  it  often  seems  an  obvious  and  undeniable  truth. 
Whether  put  forward  indirectly,  or  directly  and  unequivo- 
cally, it  is  persistent  and  pervasive. 

Now,  the  one  great  fact  in  the  normal  trade  of  peaceful 
times  is  the  extraordinarily  small  flow  of  money  in  the  set- 
tlement of  foreign  trade.  By  "  money,"  of  course,  in  foreign 
transactions,  we  mean  gold.  Though  every  individual  trans- 
action is  in  terms  of  money  —  that  is,  of  gold  —  and  though 
the  aggregate  transactions  in  terms  of  money  are  enormous, 
running  into  billions  and  billions,  the  actual  amount  of  gold 
that  changes  hands  is  insignificant.  Very  small  balances  only 
are  settled  in  specie.  By  the  mechanism  of  the  foreign  ex- 
changes, goods  are  made  to  pay  for  goods,  just  as  they  are  in 
the  mechanism  of  the  domestic  exchanges.  London  used  to 
be  the  clearing  house  for  the  complicated  offsets  and  trans- 
fers of  international  trade,  and  it  was  largely  through  Lon- 
don that  the  final  gold  balances  were  remitted.     No  doubt  we 


How  to  Promote  Foreign  Trade  97 

shall  see  in  the  future  a  shift  in  the  center  of  international 
payments.  It  would  be  rash  to  predict  precisely  to  what 
extent  they  will  cease  to  be  settled  through  London ;  but 
there  will  probably  ensue  a  considerable  dispersion  of  the 
clearing  transactions.  Some  will  doubtless  be  effected 
through  London,  some  through  New  York,  some  through 
Paris,  some  through  Berlin ;  and  eventually  there  will  not 
fail  to  be  interlocking  arrangements  between  these  several 
centers.  But  in  any  case,  once  the  world  is  again  settled  in 
the  ways  of  peace,  the  movement  of  specie  will  be  insignifi- 
cant as  compared  with  the  total  volume  of  transactions.  All 
this  is  so  familiar  that  an  apology  is  almost  due  for  restat- 
ing it. 

l^eedless  to  say,  also,  exports  pay  for  the  imports.  If 
there  be  a  permanent  excess  of  exports  from  a  country  —  a 
so-called  ''  favorable  balance  of  trade  " —  it  exists  simply  be- 
cause there  are  other  things  to  pay  for  besides  the  imported 
goods,  or  (in  the  converse  case)  other  things  for  which  the 
people  of  a  country  have  to  receive  pajTiients  than  for  their 
exported  goods.  For  the  forty  years  preceding  the  great 
war,  we  had  in  this  country  a  great  excess  of  exports,  year 
after  year ;  yet  we  all  know  there  was  a  very  slight  inflow  of 
specie.  The  exports  of  merchandise  were  simply  the  means 
by  which  we  met  sundry  other  obligations,  such  as  interest  on 
our  debts  contracted  abroad,  tourists'  expenditures,  remit- 
tances which  newly  arrived  immigrants  made  to  their  rela- 
tives in  foreign  countries,  and  similar  international  debit 
items. 

Incidentally,  I  may  remark  that  one  of  the  things  most 
surprising  to  the  economist  is  the  ease  and  rapidity  with 
which  this  enormous  and  complicated  mechanism  functions 
in  times  of  peace.  It  is  remarkable  that  when  a  country  has 
large  obligations  of  any  sort  to  meet  abroad,  even  though  those 
obligations  in  each  individual  transaction  involve  a  necessity 
of  remitting  the  equivalent  of  cash,  the  movement  of  actual 


98  Free  Trade,  the  Tariff  and  Reciprocity 

cash  is  so  small  that  the  other  main  resource,  the  movement 
of  commodities,  seems  to  take  place  spontaneously.  There 
are  some  knotty  problems  as  to  the  precise  steps  by  which 
this  apparently  spontaneous  movement  of  commodities  is 
brought  about;  but,  on  the  face  of  the  facts,  obviously  it  is 
brought  about.  Gold  moves  very  little;  exports  pay  for 
imports. 

One  of  the  most  persistent  forms  which  the  popular  mis- 
conception assumes  is  that  of  supposing  that  the  balance  of 
trade  between  one  country  and  a  single  other  country  is  of 
significance.  Many  think  that  if  we  buy  more  from  Cana- 
dians than  we  sell  to  them,  our  trade  with  that  country  is  a 
losing  one.  If,  on  the  other  hand,  we  sell  more  to  Canadians 
than  we  buy  from  them,  they  think  it  is  a  profitable  one.  It 
so  happens  that  our  trade  with  Canada  has  at  one  time  been 
supposed  to  be  in  this  way  disadvantageous,  and  at  another 
time  to  be  advantageous.  Half  a  century  ago  we  bought 
more  from  Canadians  than  we  sold  to  them,  and  were 
thought  to  be  thereby  losing  money.  Of  late  years  we  have 
sold  to  Canadians  much  more  than  we  have  bought  of  them, 
and  have  been  thought,  conversely,  to  be  making  money. 
The  simple  fact,  familiar  enough  to  persons  conversant  with 
international  dealings,  is  that  balances  of  this  kind,  one  way 
or  the  other,  are  settled  and  disposed  of  by  compensating 
dealings  with  other  countries.  During  the  earlier  period, 
when  we  bought  more  from  Canada  than  we  sold,  we  were 
enabled  to  effect  our  payments  through  exports  to  England. 
These  supplied  the  basis  for  sterling  exchange  and  served  to 
settle  our  balances  with  Canada.  In  more  recent  years,  pre- 
cisely the  converse  operation  has  taken  place.  We  have  sold 
more  to  the  Canadians  than  we  have  bought  from  them.  But 
the  Canadians  have  sent  heavy  exports  to  England,  and 
they  have  also  borrowed  heavily  in  England ;  and  it  is  theif 
credits  in  England  which  have  enabled  them  to  pay  for  the 
goods  which  they  have  boiight  of  us.     From  South  American 


How  to  Promote  Foreign  Trade  99 

countries  and  from  the  far  east  we  have  bought,  year  in  and 
year  out,  more  than  we  have  sold  to  them.  We  have  been 
enabled  to  pay  for  the  commodities  thus  bought  because  of 
our  heavy  exports  to  other  countries,  chiefly  to  Europe.  The 
balance  of  trade  between  any  pair  of  countries  is  rarely  such 
as  to  bring  about  an  equalization  of  their  exports  and  im- 
ports. It  is  in  the  grand  total  of  a  country's  transactions 
that  we  find  the  equalization  of  imports  and  exports,  or  rather 
the  equalization  of  all  of  a  country's  international  debts  and 
credits;  and  it  is  this  broad  equalization  which  serves  to 
bring  about  a  settlement  without  the  flow  of  specie. 

It  may  be  pointed  out  that  the  great  war,  which  disrupted 
all  international  trade  and  all  its  mechanism,  brought  unique 
consequences  as  regards  this  particular  phase  of  dealings  be- 
tween nations.  Although  in  times  of  peace  the  balance  of 
trade  between  one  country  and  any  single  other  country  signi- 
fies nothing  and  does  not  affect  seriously  the  flow  of  specie 
between  them,  the  case  became  different  under  the  conditions 
of  the  war,  and  particularly  under  the  conditions  which  de- 
veloped after  our  own  entry  into  the  war.  The  balance  be- 
tween each  pair  of  countries  did  come  to  be  of  real  moment. 
In  times  of  peace  the  Americans  had  been  able  to  pay  for 
their  heavy  imports  of  coffee  from  Brazil  or  raw  silk  from 
Japan  through  credits  based  on  heavy  exports  of  bread-stuffs 
and  cotton  and  copper  to  European  countries.  London  was 
the  clearing  house  for  these  transactions,  which  were  disposed 
of  irrespective  of  the  particular  relations  of  the  United  States 
with  Brazil  and  Japan.  But  all  this  mechanism  was  broken 
up  by  the  war.  Our  exports  were  largely  on  government  ac- 
count ;  and  we  got  for  them  not  credits  in  London  upon  which 
we  could  draw,  but  the  promises  to  pay  (the  bonds)  of 
foreign  governments,  which  were  tucked  away  in  the  United 
States  Treasury  vaults  and  for  the  time  being  were  not  avail- 
able for  any  financial  purpose.  Accounts  in  Brazil  or  Japan 
or  x\rgentina  had  to  be  squared  in  some  other  way.     Th^  ex- 


100  Free  Trade,  the  Tariff  and  Reciprocity 

ports  of  specie  to  them  took  place  almost  solely  as  a  result 
of  their  special  dealings  with  ourselves.  But  these  were  war 
problems,  not  peace  problems;  abnormal  and  temporary,  and 
to  be  ignored  in  a  consideration  of  permanent  conditions  and 
permanent  policy. 

The  great  war  brought  abnormal  conditions  in  other  ways. 
As  I  have  just  said,  the  usual  machinery  for  the  equalization 
and  settlement  of  international  payments  broke  down.  The 
United  States,  during  the  period  of  our  neutrality,  did  in- 
deed receive  great  amounts  of  actual  gold^  in  payment  for 
extraordinary  exports.  After  our  participation  in  the  war, 
we  arranged  to  end  this  inflow  of  gold  once  for  all,  and  to 
accept  from  our  allies  their  promises  to  pay.  And  yet  the 
previous  flow  of  specie,  astonishingly  great  as  it  was,  lasting 
as  it  did  for  a  period  astonishingly  long  —  through  the  first 
three  years  of  the  great  war  —  illustrates  the  principles  with 
which  it  seems  to  be  in  contrast.  True,  we  received  unusual 
amounts  of  specie ;  but  were  we  made  richer  thereby,  or  more 
prosperous?  The  result  was  higher  prices,  higher  wages, 
higher  cost  of  living,  all  the  phenomena  of  inflation,  all  its 
attendants  of  feverish  speculation.  We  should  have  been 
better  off  if  we  had  received  not  the  gold,  but  the  things  which 
we  ordinarily  receive  in  payment  for  increased  exports, 
namely,  a  heavier  volume  of  imported  commodities.  Under 
normal  conditions  we  should  have  received  very  little  specie, 
but  much  coffee,  sugar,  spices,  wool,  tin,  jute,  sisal;  doubt- 
less also  more  of  finished  manufactured  goods,  such  as  cot- 
tons, woolens,  linens  and  silks.  It  is  the  abundance  of  these 
commodities  which  signifies  true  prosperity.  The  influx  of 
gold  resulted  simply  in  the  cheapening  of  gold,  that  is,  in  a 
general  rise  of  prices.  It  supplied  the  basis  for  an  expan- 
sion of  credit  which  inaugurated  the  too  familiar  conditions 
of  inflation.  These  were  accentuated  after  our  own  partici- 
pation in  the  war,  still  stimulated  by  the  great  fund  of  specie 
which  had  come  in  before. 


How  to  Promote  Foreign  .T?a I'd  1^1 

A  further  word  of  introduction  and  txplauiitioii  n:a;y  be 
added  on  another  general  aspect  of  trade  between  nations. 

The  labor  and  capital  which  we  put  into  our  exported  com- 
modities serve  to  procure  for  us  the  imported  commodities. 
That  labor  and  that  capital  may  be  said  with  perfect  ac- 
curacy to  produce  the  imported  commodities.  In  the  same 
way,  the  labor  which  the  Dakota  farmers  put  into  wheat 
growing  procures  for  them,  and  may  be  said  to  produce  for 
them,  the  shoes,  iron,  and  sugar  which  they  buy  from  New 
England  and  Pennsylvania  and  Colorado;  and  the  labor 
which  the  New  England  operatives  put  into  manufacturing 
boots  and  textiles  procures  for  them  —  may  be  said  to  pro- 
duce for  them  —  the  wheat  and  flour  which  they  buy.  The 
prosperity  of  any  one  geographical  group  depends  both  upon 
its  turning  out  a  large  quantity  of  the  immediate  products  of 
its  own  labor  and  upon  exchanging  those  products  for  other 
products.  Our  foreign  trade,  our  combined  imports  and  ex- 
ports, promote  our  prosperity  as  a  people  if  we  produce  ef- 
fectively and  cheaply  commodities  which  we  export,  and  if 
we  also  exchange  those  exported  commodities  on  advantageous 
terms  for  the  imports.  It  is  the  first-named  factor  which  is 
the  more  important:  the  gain  which  we  secure  from  our 
foreign  trade  depends  chiefly  on  the  effectiveness  with  which 
we  apply  our  labor  to  produce  exports. 

Now  to  this  proposition  I  invite  attention  somewhat  more 
carefully  because  on  it  hinges  what  I  shall  say  presently  con- 
cerning the  way  in  which  we  should  shape  our  conmiercial 
policy.  Our  foreign  trade  promotes  our  prosperity  if  we 
make  our  exported  goods  effectively  and  cheaply.  The  fun- 
damental factor  is  the  effectiveness  of  our  labor  and  capital, 
and  the  cheapness  with  which  we  can  consequently  put  our 
commodities  at  the  disposal  of  foreign  purchasers.  By  cheap- 
ness is  meant,  cheapness  all  things  considered;  quality  as 
well  as  quantity,  good  quality  as  well  as  moderate  price;  or, 
if  the  price  seem  high,  quality  so  good  as  to  make  the  high 


102  'F'ree  (Drade,  the  Tariff  and  Reciprocity 

•prrce  worth  while.  Sometimes  the  needs  of  other  people  are 
satisfied  by  giving  them  large  quantities  of  goods  of  poor 
quality  at  a  low  price;  and  a  considerable  part  of  the  ex- 
port trade  of  England  and  Germany  is  secured  in  this  way. 
The  exports  from  the  United  States  have  usually  been  good 
rather  than  cheap  —  not  so  much  low  in  price,  as  good  in 
quality  and  moderate  in  price.  But  in  any  case  it  is  the 
effectiveness  of  our  industrial  powers  in  producing  a  thing 
which  is  cheap  in  comparison  with  its  quality  that  under- 
lies all  prosperous  foreign  trade.  The  very  existence  and 
maintenance  of  exports  rest  on  this  basis.  All  trade  promo- 
tion, all  banking  and  transportation  facilities,  all  trade 
agents  and  embassies,  all  agitation,  all  patriotic  devotion, 
avail  nothing  if  this  fundamental  factor  be  lacking. 

The  effectiveness  of  labor  and  capital  means  something  dif- 
ferent from  that  which  is  usually  implied  by  "  efficiency." 
"  Efficiency,"  as  that  word  is  often  used,  refers  to  special 
and  individual  skill,  intelligence,  and  activity  on  the  part 
of  the  individual  workman;  to  his  mental  endowment  or 
personal  aptitudes  or  muscular  strength.  'Now  it  is  true 
that  the  high  standard  of  living  and  the  greater  spirit  of 
activity  in  this  country  do  bring  it  about  that  our  workmen 
are,  man  for  man,  more  efficient  than  those  of  foreign  coun- 
tries. But  it  is  not  solely  or  even  primarily  efficiency  in  this 
sense  that  is  had  in  mind  when  speaking  of  the  effectiveness 
of  our  labor  and  capital.  The  terms  refer  to  the  cumulative 
influence  of  all  the  factors  which  combine  to  bring  about 
the  final  production  and  final  putting  on  the  market  of  the 
exported  commodities.  The  factors  are  many  and  diverse: 
not  only  the  efficiency  of  the  individual  men,  but  ingenuity 
on  the  part  of  inventors  and  engineers  in  perfecting  ma- 
chinery, skill  in  the  designing  and  organization  of  plants, 
brains  and  enterprise  in  management,  intelligence  in  the  dis- 
tribution and  sale  of  the  goods.  No  small  part  is  played  by 
transportation    and    especially    by    inland    transportation. 


How  to  Promote  Foreign  Trade  103 

Whatever  may  be  charged  against  our  railways,  they  have 
succeeded  in  cheapening  transportation  immensely,  especially 
in  long-distance  hauls,  and  they  have  been  a  powerful  factor 
in  increasing  the  effectiveness  of  the  total  labor  of  the  in- 
dustrial processes.  And,  throughout,  the  thing  which  prob- 
ably tells  most  of  all  in  assuring  a  combined  effectiveness  of 
our  labor  and  capital  is  industrial  leadership.  It  is  this 
which  has  made  the  modern  economic  world ;  it  is  this  which 
justifies  business  and  the  profits  of  business.  I  need  not 
say  that  this  means  also  leadership  in  service.  Successful 
leadership  implies  as  its  end  and  purpose,  not  money  making, 
but  service  in  promoting  the  effectiveness  of  industry.  That 
the  spirit  of  successful  leadership  is  the  spirit  of  service  has 
never  been  more  fully  demonstrated  than  during  this,  the 
first  year  of  our  participation  in  the  war.  The  business  lead- 
ers have  recognized  their  responsibilities  and  taken  advantage 
of  their  opportunities.  They  have  put  themselves  at  the 
service  of  the  government  and  have  served  without  stint  in 
the  conduct  of  its  affairs.  ^Money  making  is  evidence  of  ca- 
pacity to  do  service ;  true  success,  whether  in  war  or  peace, 
is  the  rendering  of  the  service. 


II 

We  shall  come  nearer  to  the  heart  of  the  matter,  when 
we  pass  from  these  generalities  to  some  things  more  con- 
crete and,  more  particularly,  to  some  conclusions  which  fol- 
low from  these  simple  and  incontestable  general  principles. 
Let  us  consider  some  devices  for  promoting  foreign  trade 
which  in  the  light  of  these  principles  appear  dubious.  They 
appear  dubious  because  not  consistent  with  the  fundamental 
principle  of  effectiveness.  They  are  not  indeed  to  be  con- 
demned offhand ;  but  they  call  for  critical  examination,  for 
careful  discrimination,  perhaps  for  rejection. 

First  of  all,  and  most  dubious  of  all,  are  export  boun- 


104  Free  Trade,  the  Tariff  and  Reciprocity 

ties  —  bounties  paid  directly  by  governments  upon  the  ex- 
port of  commodities.  These  are,  on  their  face,  a  confession 
of  lack  of  effectiveness.  They  mean  that  the  commodities 
cannoit  be  exported  upon  their  merits.  True,  they  may  mean 
low  price  in  the  sale  of  the  commodities,  since  the  exporter 
makes  up  for  a  price  in  itself  unprofitable  through  the  bounty 
paid  him.  But  that  very  circumstance  indicates  that  the 
sales  do  not  mean  low  cost  or,  what  amounts  to  the  same 
thing,  do  not  mean  high  effectiveness.  The  bounties  do  not 
really  cheapen  your  goods  in  the  important  sense  of  cheap- 
ness ;  they  mean  that  a  payment  from  the  public  purse  makes 
up  for  a  lack  of  effectiveness.  Remember  that,  in  the  last 
analysis,  the  labor  which  procures  imports  is  the  labor  which 
serves  to  produce  your  exports.  If  an  export  bounty  is  paid, 
you  must  reckon  as  part  of  the  total  cost  of  the  exports  not 
merely  the  labor  directly  applied  to  them,  but  also  that  which 
is  involved  in  the  export  bounty.  The  money  for  the  export 
bounty  comes  out  of  taxes ;  and  taxes  mean  that  a  part  of  the 
community's  labor  is  turned  by  the  government  into  the  chan- 
nels for  which  its  payments  are  made.  In  addition  to  the 
labor  needed  for  producing  the  exports,  we  must  reckon  the 
labor  involved  in  paying  the  bounty.  A  country  simply  de- 
ceives itself  when  thinking  that  it  gains  by  this  process. 

Only  if  we  accept  the  old  and  long  discarded  notion  that 
any  foreign  sale  whatever  is  profitable,  can  we  conceive  of 
export  bounties  as  being  advantageous  to  a  nation.  If  in- 
deed we  take  the  view  that  an  export  sale  in  itself  necessarily 
constitutes  a  profit ;  if  we  are  so  ill-informed  as  to  think  that 
the  gold  actually  flows  in  for  every  item  of  exported  goods, 
and  so  ill-advised  as  to  believe  that  an  unending  inflow  of 
gold  makes  a  country  unendingly  prosperous,  then  indeed 
we  may  think  that  export  bounties  promote  fundamental  pros- 
perity. But  the  fallaciousness  of  this  way  of  looking  at  the 
matter  does  not  need  to  be  dwelt  upon.  The  exports  signify 
not  gold  or  riches,  but  imported  goods  got  in  exchange ;  and 


How  to  Promote  Foreign  Trade  105 

if  in  the  payment  for  those  imported  goods  we  also  tax  our- 
selves in  order  to  pay  a  bounty,  we  lose  so  much  of  the  real 
gain  from  foreign  trade. 

It  is  fair  to  say  that  direct  public  bounties  upon  exports 
have  virtually  ceased.  The  most  striking  instance  of  their 
payment  upon  a  large  scale  was  in  the  bounties  upon  the  ex- 
port of  beet  sugar  which  were  paid  for  some  twenty  years 
preceding  1903  by  various  continental  countries.  All  these 
countries  sinned,  and  all  of  them  became  in  due  time  thor- 
oughly repentant.  The  senseless  rivalry  in  bounty  paying 
upon  exportation  of  beet  sugar  went  so  far  as  to  make  serious 
inroads  upon  the  public  exchequers  of  several  countries,  and 
it  was  a  real  relief  to  all  hands  when  Great  Britain  in  1903, 
by  refusing  to  remain  longer  the  one  country  into  which 
bounty-fed  sugar  could  be  dumped  upon  a  considerable  scale, 
put  an  end  to  the  whole  business. 

The  second  dubious  device,  and  one  in  which  the  prob- 
lems are  more  difficult  and  complicated,  is  that  of  special 
transportation  rates  for  export  business.  To  simplify  the 
question  of  principle  here  involved,  and  strip  it  of  the  polit- 
ical and  naval  problems  that  are  connected  with  ocean  trans- 
portation and  the  merchant  marine,  let  us  confine  the  dis- 
cussion to  rates  for  inland  transportation.  Kailroad  rates 
constitute  the  most  conspicuous  and  the  most  debatable  prob- 
lem. It  must  be  admitted  that  most  governments  do  in  fact 
follow  the  practice  of  allowing  special  railroad  rates  for  ex- 
port business ;  not  only  Germany  and  France  and  the  coun- 
tries of  the  Continent  generally,  but  the  United  States  also. 
Our  inland  rates  to  the  seaboard  on  various  commodities  are 
lower  for  export  business  than  for  purely  domestic  business. 
The  Germans  are  often  roundly  accused  of  making  repre- 
hensible use  of  this  device.  It  must  not  be  forgotten  that  we 
have  done  the  same  under  private  management  of  railways, 
and  that  our  governing  authority,  the  Interstate  Commerce 
Commission,  has  repeatedly  sanctioned  the  practice.   • 


106  Free  Trade,  the  Tarijf  and  Reciprocity 

It  is  obvious  that  if  a  railroad  Were  to  transport  for  noth- 
ing —  if  it  were  to  give  away  the  transportation  once  for  all 
—  the  case  would  be  the  same  as  that  of  an  export  bounty. 
The  article  so  transported  could  indeed  be  sold  abroad  at  a 
comparatively  low  price.  But  that  low  price  would  not  be  a 
sign  or  a  consequence  of  effectiveness  in  production ;  for  there 
would  not  be  included  in  the  price  a  real  and  important 
element  of  actual  cost,  namely,  the  transportation  expense. 
In  such  a  case  we  should  not  be  exporting  at  really  low  cost ; 
we  should  be  concealing  a  substantially  higher  cost.  The 
item  of  railroad  transportation  would  not  be  obliterated  or 
saved,  but  would  be  simply  paid  for  in  some  other  way.  It 
would  be  made  up  either  by  the  railroads  themselves  out  of 
their  general  profits,  or  by  the  domestic  shippers  and  con- 
sumers through  higher  rates  upon  domestic  business,  or  by  a 
combination  of  these  processes. 

If  transportation  is  not  given  away  outright,  but  is  offered 
at  reduced  rates  on  export  business,  the  case  seems  to  be  in 
essence  the  same,  only  not  to  proceed  quite  so  far.  To  the 
extent  to  which  the  process  of  reduction  or  favoritism  is  car- 
ried, there  is  a  concealment  of  real  cost.  Consider  the  sev- 
eral elements  of  the  situation.  The  export  rate  is  lower  than 
the  domestic  rate.  But  that  domestic  rate  itself  may  be  pre- 
sumed to  be  reasonable,  that  is,  reasonable  in  view  of  cost  of 
carriage,  and  based  principally  on  cost  of  carriage.  All  our 
regulatory  legislation,  our  Interstate  Commerce  Commission, 
all  our  state  commissions,  are  established  to  insure  the  car- 
riage of  traffic  at  reasonable  and  proper  rates ;  and  reasonable 
and  proper  rates  are  such  as  conform  upon  the  whole  to  cost 
of  carriage.  If,  now,  the  domestic  rate  is  reasonable,  and  the 
export  rate  is  lower  than  the  domestic  rate,  the  export  rate 
will  seem  necessarily  to  be  less  than  cost  of  carriage.  Such  a 
special  export  becomes  a  device  for  artificially  forcing  the 
exports,  and  is  essentially  like  a  bounty ;  it  means  sham  ef- 
fectiveness, not  real  effectiveness. 


How  to  Promote  Foreign  Trade  107 

It  must  be  admitted  at  once  that  this  is  by  no  means  every- 
thing that  can  be  said  on  the  problem  of  railway  rates  on 
export  business.  The  railway  rate  problem  is  highly  com- 
plicated. Every  student  of  the  relation  of  rates  to  cost  of 
carriage  knows  that  cost  is  almost  impossible  to  allocate  with 
exactness.  ''  Reasonable  rates  "  are  extremely  difficult  to  fix 
with  precision.  Even  though  a  general  average  be  arrived 
at  which  is  in  right  relation  to  cost  of  carriage,  the  determina- 
tion of  such  an  average  does  not  necessarily  lead  to  the  corol- 
lary that  each  individual  rate  can  or  should  be  similarly 
fixed  in  direct  relation  to  cost  of  carriage  for  the  individual 
item  of  traffic.  Special  rates  are  often  justified  by  special 
traffic  conditions.  Special  rates  upon  export  traffic  may  also 
be  justified  in  view  of  special  conditions.  But  it  would  seem 
that  they  should  be  granted  only  in  the  same  way  and  on  the 
same  principles  as  any  other  special  rates  —  perhaps  in  view 
of  unusual  competition  by  alternative  routes,  perhaps  in 
view  of  the  utilization  of  equipment  otherwise  idle.  They 
should  not  be  granted  simply  and  solely  on  the  ground  of 
export  destination.  Here,  too,  we  must  not  delude  ourselves 
with  the  belief  that  the  mere  fact  of  export,  not  based  upon 
a  real  effectiveness  in  producing  and  transporting  and  mar- 
keting the  exported  commodities,  brings  a  special  gain  to 
the  country.  If  indeed  we  believe  that  any  and  every  kind 
of  export  is  in  itself  desirable,  that  it  necessarily  brings 
of  itself  a  net  gain  to  the  country,  then  and  then  only  we 
shall  be  prepared  to  admit,  as  in  the  case  of  direct  bounties, 
that  special  transportation  rates  for  export  are  in  themselves 
desirable.  Special  export  rates  are  open  to  suspicion  on  the 
same  ground  that  export  bounties  are  to  be  rejected.  The 
case  for  them  must  be  affirmatively  established,  like  that  for 
every  special  rate  in  every  branch  of  railway  transportation. 

Turn  now  to  a  third  device,  also  questionable.  What  is  to 
be  said  of  special  prices  made  by  the  producers  for  export 
business  —  lower   prices   than   are   asked   and   expected   on 


108  Free  Trade,  the  Tariff  and  Reciprocity 

strictly  domestic  sales?  Are  they  good,  and  are  they  to 
be  encouraged  ? 

On  the  face  of  it,  lower  prices  for  exported  goods  than 
for  the  identical  goods  sold  in  the  domestic  market  seem 
open  to  the  same  objections  as  transportation  favors,  and 
seem  equally  dubious.  Here,  in  th^  case  of  railway  rates, 
let  us  fasten  attention  to  special  arrangements  resting  solely 
upon  the  fact  of  export  destination.  We  seem  to  be  con- 
fronted by  a  similar  dilemma.  If  the  export  price  is  spe- 
cially low,  the  domestic  price  must  be  made  specially  high, 
and  (it  would  seem)  must  be  unreasonably  high.  If  the 
export  price  is  lower  than  would  be  warranted  by  real  ef- 
fectiveness, the  domestic  price  must  be  higher  than  is  war- 
ranted by  real  effectiveness.  If  the  export  sales  are  at  less 
than  cost,  domestic  sales  must  be  made  at  more  than  cost. 

This  dilemma  is  most  often  stated,  and  most  effectively 
stated,  in  cases  where  there  is  monopoly  or  something  close 
to  monopoly.  Suppose  that  a  single  concern  has  control  of 
a  given  product  or  set  of  products;  it  will  often  sell  in  one 
market  at  a  cheaper  rate  than  in  another  market.  A  glaring 
instance,  laid  bare  by  repeated  public  investigations,  was 
that  of  the  policy  which  the  Standard  Oil  combination  fol- 
lowed in  its  domestic  transactions;  it  sold  in  some  domestic 
markets  at  lower  prices  than  in  other  domestic  markets. 
Now,  if  the  price  in  the  favored  market  was  sufficient  and 
reasonable,  ipso  facto  the  price  in  the  non-favored  market 
was  more  than  reasonable.  Similarly,  if  an  export  price  is 
in  itself  sufficient  and  reasonable  and  in  right  accord  with 
cost,  then  the  domestic  price,  if  greater,  must  necessarily  be 
unreasonably  high  and  in  excess  of  cost.  If,  on  the  other 
hand,  the  lower  price  to  foreigners  is  in  itself  not  enough 
to  cover  costs,  then  the  domestic  price  must  in  the  long  run 
cover  the  difference;  the  domestic  price  must  be  too  high. 
And  in  this  latter  case  the  exports,  if  made  at  prices  which 
do  not  in  the  long  run  really  cover  costs,  are  based  not  upon 


How  to  Promote  Foreign  Trade  109 

real  effectiveness  of  industry,  but  upon  concealment  of  real 
cost,  precisely  as  in  the  case  of  export  bounties.  The  prac- 
tice seems  to  involve  either  undue  prices  to  the  domestic 
consumer,  or  else  a  sham  effectiveness  in  producing  the  ex- 
ported article,  not  real  effectiveness. 

Here  again,  as  in  the  case  of  railway  rates,  this  mode 
of  dealing  with  the  problem  may  not  probe  it  to  the  bottom. 
If  railway  rates  are  highly  complicated,  some  problems  of 
price  and  of  cost  in  relation  to  price  are  almost  equally  com- 
plicated in  any  large-scale  industry.  The  situation  is  far 
from  simple;  it  raises  all  the  questions  of  fixed  charges,  of 
overhead  expenses,  of  cost  accounting  and  the  allocation  of 
costs,  of  business  policies  in  the  face  of  fluctuating  demand, 
of  the  ways  of  meeting  alternate  cycles  of  activity  and  de- 
pression, of  security  and  continuity  in  industrial  operations. 
It  raises,  too,  the  question  of  the  difference  between  a  sporadic 
and  a  systematic  application  of  special  export  prices.  In  the 
early  stage  of  export  trade,  special  allowances  on  exports 
may  be  part  of  an  effective  policy  of  merchandising.  Prac- 
tices of  this  kind  tend  to  become  less  widely  applied  in  the 
later  s1;age  of  fully  developed  and  continuous  export  business. 
There  are  here  unsettled  questions  not  only  of  economic  an- 
alysis, but  also  of  sound  business  policy  and  of  effective  in- 
dustrial leadership. 

But  when  all  is  said,  it  would  still  seem  that  practices  of 
this  sort,  namely,  special  rates  upon  export  trade,  must  be  on 
the  defensive.  It  needs  to  be  proved  that  they  are  really  ad- 
vantageous to  the  community.  At  first  sight  they  appear  to 
be  disadvantageous  —  to  mean  not  real  effectiveness  of  in- 
dustry, but  concealment  of  a  cost  or  burden  actually  incurred 
in  the  export  part  of  a  business,  yet  borne  not  by  that  part  but 
by  the  rest  of  the  business  or  by  the  community  at  large. 
And  here  once  more  let  us  not  fall,  as  involuntarily  we  do, 
into  the  deceitful  belief,  or  perhaps  the  flattering  unction,  that 
the  sending  of  goods  abroad  is  in  itself  a  thing  which  brings 


110  Free  Trade,  the  Tariff  and  Reciprocity 

money  into  the  coaintry  and  thereby  makes  us  all  more  pros- 
perous. Let  us  hold  fast  to  the  fundamental  principle  that 
the  exports  are  the  means  of  producing  the  imports,  and  that 
only  if  there  be  real  effectiveness,  real  success  in  the  appli- 
cation of  our  labor  and  capital,  does  the  country  gain. 

In  all  discussions  of  special  export  prices  and  of  dump- 
ing, a  distinction  must  be  borne  in  mind  between  sporadic  and 
permanent  transactions  - —  between  occasional  sales  at  special 
prices  and  a  permanent  policy  of  lowered  prices  for  export. 
Ko  one  questions  that  conditions  may  arise  at  times  in  any 
business  venture  which  will  compel  the  disposal  of  a  block  of 
commodities  at  any  price  they  will  fetch  when  thrown  upon 
the  market.  These  are  not  pleasant  or  welcome  conditions, 
but  they  must  be  faced  as  sometimes  inevitable.  It  is  quite 
a  different  matter,  however,  to  sell  permanently  and  syste- 
matically one  part  of  your  output  at  a  different  price  from 
the  rest  of  your  output.  To  put  it  another  way,  it  is  more 
than  questionable  whether  overhead  or  general  expenses 
should  be  permanently  distributed  in  such  a  way  that  any 
part  of  the  sales  will  be  made  without  consideration  of  this 
burden,  or  without  due  consideration  of  it.  In  the  long  run, 
and  as  a  matter  of  permanent  policy,  every  part  and  parcel  of 
the  output  should  bear  its  due  share  of  the  total  cost  of  bring- 
ing it  to  market.  If  in  the  long  run  it  does  not  so  bear  its 
due  share  —  if  it  is  sold  in  such  a  way  that  the  overhead  or 
general  expense  is  not  properly  debited  against  it  —  then 
sooner  or  later  the  rest  of  the  output  must  bear  rnore  than  its 
due  share  of  the  general  expense.  The  overhead  must  be 
paid  for  somehow,  l^o  part  of  a  business  really  pays  which 
fails  to  pay  its  proportionate  share  of  the  expenses  of  con- 
ducting it.  This  is  no  less  true  of  foreign  trade  than  of  do- 
mestic trade;  no  less  true  for  the  country  at  large  than  for 
a  separate  business.  Sales  may  be  made  occasionally  with- 
out regard  to  general  cost,  and  even  with  little  regard  to  the 
direct  or  specific  expenses  entailed  for  the  particular  items. 


How  to  Promote  Foreign  Trade  111 

But  in  the  long  run,  and  as  a  permanent  policy,  sacrifice  sales 
and  special  price  sales  are  not  profitable  to  the  individual 
business,  and  are  not  profitable  to  the  nation.  In  our  dis- 
cussions of  foreign  trade  and  of  foreign  trade  policy  it  is  the 
permanent  conditions  and  the  long  nm  results  which  we  must 
primarily  bear  in  mind.  The  continuous  and  successful  ex- 
pansion of  foreign  trade  must  rest  not  upon  sporadic  or  occa- 
sional transactions,  but  upon  those  which  can  be  continued 
with  advantage  year  after  year,  and  on  essentially  the  same 
basis  year  after  year. 

Fourth  and  last,  is  a  dubious  device  of  a  different  sort: 
special  concessions  in  foreign  countries,  in  the  form  of  lower 
rates  of  duty  on  our  goods  when  exported  to  those  countries. 
Shall  we  try  to  arrange  commercial  treaties  or  reciprocity 
agreements  on  the  basis  of  assuring  to  American  commodities, 
when  they  reach  the  foreign  custom  house,  lower  rates  of  duty 
than  are  exacted  on  the  same  commodities  when  imported 
from  third  countries?  To  simplify  this  case  also,  let  us  set 
aside  any  arrangements  which  are  based  on  particularly  close 
political  ties  or  on  geographical  contiguity.  We  have  at  pres- 
ent, for  example,  arrangements  with  Cuba  by  which  Amer- 
ican commodities  are  admitted  into  Cuba  at  lower  rates  of 
duty  than  commodities  from  other  countries.  These  arrange- 
ments have  a  political  as  well  as  an  economic  aspect.  They 
were  introduced  and  justified  largely  upon  political  gi'ounds, 
indeed  quasi-sentimental  grounds,  namely,  the  close  affiliation 
between  this  country  and  Cuba  which  was  the  result  of  our 
intervention  in  freeing  Cuba  from  Spain.  Let  us  set  aside, 
also,  cases  in  which  there  is  an  extended  common  frontier. 
Such  a  frontier  exists  between  Portugal  and  Spain,  or,  to 
come  nearer  home,  between  the  United  States  and  Canada. 
Our  border  is  contiguous  to  that  of  Canada  over  many  thou- 
sands of  miles  and  the  facilities  for  convenient  border  trade 
at  many  points  would  readily  justify  our  entering  into  spe- 
cial commercial  relations  with  Canada.     We  had  such  rela- 


112  Free  Trade,  the  Tarijf  and  Reciprocity 

tions  in  the  past,  under  the  reciprocity  treaty  of  1854,  and 
on  our  statute  books  we  still  have  the  reciprocity  act  passed 
in  1911,  offering  freedom  from  duty  for  a  considerable  list 
of  articles  on  condition  that  Canada  grant  to  our  commodi- 
ties a  like  freedom.  That  offer  we  still  hold  open.  Cases 
of  this  kind  —  our  relations  with  Cuba  and  Canada  — 
present  some  problems  of  their  own,  to  be  dealt  with  on 
grounds  of  their  own.  The  question  of  principle  may  be 
weighed  quite  on  its  economic  merits,  by  examining  a  spe- 
cial arrangement  where  there  are  no  such  special  circum- 
stances. Consider,  for  instance,  the  arrangement  which  we 
now  have  with  Brazil  whereby  certain  American  commodi- 
ties are  admitted  into  that  country  at  lower  rates  than  are 
imposed  upon  the  same  commodities  when  they  reach  Brazil 
from  other  countries. 

Here  again  the  test  of  real  effectiveness  may  be  applied. 
Special  favors  in  Brazil  may  enable  us  to  sell  our  exports 
to  Brazil ;  but  they  do  not  cause  us  to  be  really  effective  in 
serving  either  the  Brazilians  or  ourselves.  If  our  exporters 
cannot  do  the  business  without  the  discriminating  rates  —  if 
they  cannot  sell  in  Brazil  without  such  aid  —  then  the  ex- 
porters of  other  countries  are  obviously  more  effective  in  serv- 
ing them.  Our  exporters  then  are  bolstered  up,  not  indeed 
at  the  expense  of  our  own  treasury  or  of  our  domestic  cus- 
tomers, as  in  the  case  of  export  bounties  or  of  special  trans- 
portation rates,  but  at  the  expense  of  the  Brazilian  consumers. 
Their  lack  of  real  effectiveness  is  made  up  by  the  exclusion 
of  the  more  effective  competitors.  It  is  once  more  a  case 
not  of  real  effectiveness  but  of  sham  effectiveness. 

Once  more,  let  me  not  be  misunderstood.  Ties  of  friend- 
ship and  of  friendly  political  affiliation  may  lead  to  special 
reciprocity  rates  or  to  special  trade  agreements,  regardless 
of  direct  material  benefit  to  one  party  or  the  other.  Of  this 
our  relations  with  Cuba  give  a  striking  example.  But  the 
governing  conditions  of  trade  in  the  world  at  large  are  not  of 


How  to  Promote  Fon-eign  Trade  113 

this  sort.  Trade  in  the  main  has  been  and  will  be  a  matter 
of  material  advantage.  In  the  main  we  must  export  on  the 
same  terms  and  on  the  same  conditions  as  our  rivals.  If  we 
secure  special  favors,  we  can  justify  them  only  on  the  ground 
that  the  countries  which  grant  them  are  willing  to  make  a 
sacrifice  for  the  sake  of  carrying  on  a  trade  which  is  not  in 
itself  the  most  advantageous  for  them.  In  the  long  run,  how- 
ever, we  cannot  expect  them  to  do  other  than  to  maintain  the 
most  advantageous  trade.  In  other  words,  in  the  long  run  we 
must  rely  upon  real  effectiveness  and  upon  real  service,  not 
upon  special  favors  or  discriminating  rates  of  duty.  That 
which  is  advantageous  in  our  o^vn  domestic  transactions, 
namely,  the  maximum  effectiveness  of  labor  and  capital  in 
production,  is  also  advantageous  in  our  foreign  trade,  both  to 
ourselves  and  to  countries  with  whom  we  trade.  All  favors, 
all  discriminations,  all  special  rights,  all  promotion  and  ad- 
vertising, sink  into  insignificance  as  compared  with  this  fun- 
damental factor.  To  make  our  export  trade  enriching  and  of 
real  national  profit,  we  must  so  organize  and  conduct  our  in- 
dustries that  we  shall  make  goods  plentifully  and  cheaply, 
and  we  must  sell  our  goods  on  their  merits  and  on  tempting 
terms,  to  every  customer  at  the  same  price. 

To  take  this  position  is  by  no  means  the  same  thing  as  to 
adopt  a  policy  of  laissez  faire  in  foreign  trade;  neither  does 
it  imply  any  commitment  one  way  or  the  other  on  the  question 
of  protection  and  free  trade.  It  does  imply  a  policy  of  non- 
discrimination, or  at  least  one  of  resolvedness  neither  to  dis- 
criminate nor  to  be  discriminated  against.  The  United 
States  must  hold  itself  free  to  adopt  such  tariff  policy  as 
seems  suited  to  its  own  interests.  It  must  leave  to  other 
countries  the  same  freedom.  But  whatever  tariff  system  we 
adopt,  we  should  aim  to  apply  it  without  discrimination  to  all 
comers;  and  whatever  system  another  country  adopts  we 
should  wish  that  country  to  apply  to  ourselves  on  the  same 
terms  and  in  the  same  way  as  to  others.     The  essential  prin- 


114  Free  Trade,  the  Tariff  and  Reciprocity 

ciple  in  the  general  attitude  wliicli  I  here  suggest  is  that  of 
non-discrimination. 

It  is  conceivable  that  a  policy  of  this  sort  cannot  be  car- 
ried out  to  the  full.  Indeed,  it  is  certain  that  it  cannot  be 
successfully  carried  out  by  merely  proclaiming  it,  or  by 
merely  expressing  our  wish  to  abide  by  it.  Other  countries 
may  adopt  tariff  legislation  which  discriminates  against  the 
United  States.  Should  they  do  so,  we  must  be  prepared  to 
apply  pressure  to  them,  and  in  case  of  need  to  discriminate 
against  them.  We  now  (1918)  possess  virtually  nothing  in 
the  nature  of  a  bargaining  weapon.  Something  of  the  sort  is 
indispensable.  We  should  have  provisions  on  the  statute 
books  enabling  the  administration  to  meet  discrimination 
by  discrimination,  force  by  force.  We  should  be  able  to  say 
to  other  countries  which  refuse  to  grant  us  terms  as  favor- 
able as  their  tenns  to  third  nations,  that  we  shall  in  turn  sub- 
ject them  to  unfavorable  or  discriminating  rates.  But  our 
purpose  in  securing  and  exercising  this  should  be  not  that  of 
putting  discriminations  into  effect,  but  that  of  removing 
them.  The  goal,  to  repeat,  should  be  the  open  door,  the 
same  treatment  for  all. 

To  sum  up:  the  four  devices  for  promoting  export  trade 
considered  in  the  preceding  discussion  are  first,  export 
bounties ;  second,  special  transportation  rates  on  export  traffic ; 
third,  special  reduced  prices  on  commodities  sold  for  export ; 
and  finally,  lower  duties  on  American  goods  in  foreign  coun- 
tries, secured  by  negotiation  or  treaty.  Among  these  the 
first  and  the  fourth  —  export  bounties  and  duties  discrim- 
inating in  our  favor  —  are  the  most  dubious  of  all.  The  sec- 
ond and  third  —  special  transportation  rates  and  special  ex- 
port prices  —  though  they  raise  intricate  questions  and  are 
not  so  clearly  out  of  accord  with  sound  policy,  nevertheless 
have  a  presumption  against  them.  In  all  four  cases  we 
should  at  the  least  pause,  and  inquire  with  a  fair  and  open 
mind  whether  these  several  methods  of  action  really  conduce 


How  to  Promote  Foreign  Trade  115 

to  the  prosperity  of  the  United  States  or  the  prosperity,  of 
nations. 

^N'ot  only,  however,  are  such  devices  dubious,  sometimes 
even  clearly  bad ;  but  they  are  constant  causes  of  misunder- 
standing, suspicion,  recrimination,  international  friction. 
They  arouse  irritation  most  of  all  when  they  are  concealed, 
or  supposed  to  be  concealed.  Like  many  another  aggressive 
act,  they  stir  resentment  most  sharply  when  they  are  furtive. 

It  is  not  difficult  to  adduce  cases  where  there  has  been 
concealed  or  furtive  resort  to  one  or  another  of  these  devices. 
One  instance  of  the  kind  has  already  been  referred  to,  namely, 
the  much-discussed  export  bounties  on  beet  sugar  from  the 
continent  of  Europe.  They  had  their  origin  in  a  drawback 
pajonent  which  was  supposed  to  be  merely  the  equivalent  of 
an  internal  or  excise  tax,  but  which  in  fact  developed  into  a 
bounty  because  in  excess  of  the  excise  actually  collected.  A 
similar  case  has  more  recently  been  the  occasion  of  a  ruling 
by  our  own  Treasury  Department.  Certain  drawback  pay- 
ments were  made  by  Germany  on  the  export  of  grain  and 
flour,  based  not  upon  the  exportation  of  the  identical  ma- 
terials on  which  the  taxes  had  been  paid  (in  this  case  import 
duties)  but  upon  the  exportation  of  equivalent  amounts  irre- 
spective of  identity.  Our  Treasury  Department  felt  com- 
pelled to  rule  that  a  virtual  bounty  upon  export  had  been 
paid  —  not  necessarily  with  deliberate  intention,  but  with 
substantially  the  outcome  of  a  bounty  payment.  Cases  of 
this  kind  are  precisely  of  the  sort  to  arouse  suspicion  of  an 
intent  to  circumvent  a  competitor  which  does  not  appear 
upon  the  face  of  the  proceeding.  The  same  is  true  of  the 
preferential  transportation  rates.  True,  they  may  rest  on  a 
really  sound  railway  policy ;  they  may  be  occasioned,  for  ex- 
ample, by  competitive  route  conditions  such  as  are  universally 
recognized,  both  in  the  policies  of  privately  owned  and  of  pub- 
licly owned  railways,  as  justifying  special  rates.  Neverthe- 
less, when  granted  to  export  traffic,  the  suspicion  always  arises 


116  Free  Trade,  the  Tarijf  and  Reciprocity 

that  they  rest  not  honestly  upon  a  sound  basis  of  this  sort, 
but  upon  something  different  and  dubious.  They  are  be- 
lieved to  evince  an  endeavor  to  outwit  and  circumvent,  by 
hook  or  by  crook,  the  foreign  competitor. 

One  further  case  in  which  misunderstanding  and  sus- 
picion arise  deserves  to  be  noted.  The  mode  in  which  inter- 
national arrangements  for  favors  in  the  way  of  import  duties 
are  brought  about  may  be  the  cause  of  irritation  on  the  part 
of  rival  countries.  The  arrangement  now  in  force  between 
the  United  States  and  Brazil,  admits  some  American  com- 
modities into  Brazil  on  the  payment  of  duties  lower  than 
those  applicable  to  commodities  from  other  countries.  We 
thus  possess  in  Brazil  the  dubious  advantage  of  duties  dis- 
criminating in  our  favor.  It  rests,  however,  upon  no  treaty 
or  commercial  agreement,  but  on  the  voluntary  act  of  Brazil. 
So  far  as  appears  upon  the  official  record,  that  country,  out 
of  spontaneous  friendliness  for  the  United  States,  voluntarily 
grants  us  the  discriminating  duties.  Yet  any  one  conversant 
with  the  history  of  our  dealings  with  Brazil  knows  that  the 
arrangement  goes  back  to  a  preceding  period  of  negotiations 
and  treaties  in  which  we  asked  urgently  for  favors  of  the 
same  sort.  Whatever  the  formal  record,  it  is  not  supposed 
by  any  open-minded  and  well-informed  person  that  the  favors 
were  granted  without  persuasion  by  oar  diplomatic  repre- 
sentatives. Certain  it  is  that  they  are  supposed  by  other 
countries  to  have  had  such  a  basis  and  such  an  origin.  We 
possess  advantages,  but  do  not  come  into  the  open  and  let  it 
be  known  in  what  manner  or  by  what  sort  of  persuasion  we 
have  succeeded  in  securing  them.  Our  position,  at  best  not 
easily  defended,  is  the  more  open  to  attack  because  believed 
to  be  not  entirely  straightforward. 


How  to  Promote  Foreign  Trade  117 

ni 

I  pass  now  to  some  considerations  of  a  more  general  sort. 
What  is  our  present  attitude  in  the  international  sphere  ? 
All  relations  between  nations  are  in  the  melting  pot.  The 
great  war  has  opened  a  new  era.  We  cannot  separate  our 
industrial  and  trade  policy  from  our  political  and  military 
policy.  Whatever  attitude  we  take  toward  the  world  in  the 
larger  phases  of  international  politics  must  be  reflected  in  our 
policy  with  regard  to  foreign  trade. 

One  common  attitude  should  lead  us  to  pause  and  reflect. 
We  are  often  told  of  America's  opportunity,  of  the  opening 
made  for  American  trade  and  American  exports  by  the  oust- 
ing of  the  Germans  and  the  crippling  of  the  European  coun- 
tries which  are  our  allies.  We  have  a  chance  to  establish 
ourselves,  it  is  said.  Let  us  oust  our  rivals,  push  our  trade, 
get  a  firm  footing,  hold  our  gains  after  the  war. 

Much  of  the  language  used  in  this  connection  has  not  a 
pleasant  or  a  generous  sound.  It  suggests  a  spirit  of  re- 
joicing at  a  chance  to  hit  one's  rival  when  he  is  down.  We 
are  urged  to  take  advantage  of  the  misfortune  and  weakness 
of  others,  and  to  establish  ourselves  in  their  places  in  such 
a  way  as  to  prevent  them  from  having  any  opportunity  there- 
after. We  much  resent  such  an  attitude  when  we  suspect 
it  in  the  case  of  another  country.  Should  we  not  sedulously 
refrain  from  manifesting  an  ungenerous  attitude  ourselves  ? 

The  war  beyond  doubt  will  alter  seriously  the  old  currents 
of  trade.  The  force  of  habit  is  strong  in  commerce  between 
nations  as  it  is  in  commerce  within  a  country.  Many  trade 
relations  of  the  past  have  maintained  themselves  largely  by 
inertia.  The  war  necessarily  brings  a  shock,  and  makes  pos- 
sible new  combinations.  The  situation  is  not  dissimilar  in 
our  import  trade.  There  too  the  war  has  precipitated  a 
change.  Some  commodities  formerly  imported  into  the 
United  States  may  never  be  imported  again.     In  consequence 


118  Free  Trade,  the  Tariff  and  Reciprocity 

of  the  cessation  of  imports,  goods  formerly  imported  have 
been  made  by  domestic  producers  who  may  hold  their  own, 
even  without  any  changes  in  our  import  duties,  when  peace 
has  once  been  restored.  As  regards  exports  also,  it  will 
probably  turn  out  that  some  commodities  of  which  the  foreign 
sale  has  been  suddenly  and  even  dramatically  stimulated  by 
war  conditions,  will  continue  to  be  exported  after  the  restora- 
tion of  peace.  All  the  ties  and  traditions  of  former  times 
have  been  broken.  The  opportunity  is  open  to  all ;  the  field 
is  free.  But  let  us  enter  it  as  a  free  and  open  field,  and  not 
endeavor  to  make  it  a  closed  field  of  our  own.  Let  us  rest 
our  forward  endeavors  not  upon  the  misfortunes  or  weak- 
nesses of  others,  but  on  our  own  inherent  strength.  Let  us 
ask  no  favors,  let  us  use  no  unfair  or  deceptive  devices.  Let 
our  true  strength  be  revealed,  not  our  weaknesses  concealed 
and  overcome  by  artifice. 

These  reflections,  combined  with  a  rational  conception  of 
the  significance  of  foreign  trade  and  of  the  best  ways  of  pro- 
moting it,  lead  finally  to  two  fundamental  conclusions. 
First,  the  extension  of  our  export  trade  should  be  based  upon 
effectiveness  in  service  —  on  well-paid  labor  well  applied, 
and  on  serviceable  goods  produced  cheaply  and  offered  to  all 
comers  on  the  same  terms.  Our  international  trade,  like  our 
international  polity,  rests  on  a  sound  basis  only  if  it  conduces 
to  the  advantage  of  others  as  well  as  to  ourselves.  We  shall 
exchange  goods  profitably  with  other  countries  if  the  profit 
and  the  benefit  of  others  are  no  less  than  our  own.  And  this 
result  is  achieved,  to  repeat  once  more,  not  by  bounties,  not 
by  special  prices,  not  by  overt  or  furtive  discriminations  in 
our  favor,  but  by  the  plain  and  fundamental  fact  of  doing  our 
work  well  and  doing  a  service  to  others.  The  keynote  of 
our  foreign  trade  policy  should  be  effectiveness  in  industry, 
service  to  all. 

Second,  our  international  policy  should  be  frank  and  open, 
and  in  commercial  matters  that  of  the  open  door.     The  open 


How   to  Promote  Foreign  Trade  119 

door  policy,  it  need  hardly  be  said,  means  that  we  wish  no 
special  favors  for  ourselves,  and  oppose  special  favors  to 
others.  We  have  adopted  it  and  followed  it  unflaggingly  and 
without  qualification  in  the  Far  East.  There  we  have  main- 
tained that  the  United  States  and  other  nations  should  all 
stand  upon  the  same  footing  in  economic  and  financial  com- 
petition. We  believe  that  all  negotiation  should  be  simple 
and  straightforward,  and  that  the  outcome  should  be  the 
establishment  of  the  same  terms  for  every  one.  We  wish  a 
fair  field,  an  honorable  rivalry.  It  is  our  pride  that  in  the 
Orient  we  have  nothing  to  conceal,  nothing  to  explain,  noth- 
ing to  apologize  for.  Our  policy  in  the  Occident  should  be 
no  less  the  cause  for  a  just  pride.  We  wish  for  no  discrim- 
inations in  our  own  favor,  we  are  opposed  to  discriminations 
in  favor  of  others.  We  stand  for  open  dealing,  open  diplo- 
macy, open  commerce.  Our  democracy  is  idealistic ;  our  in- 
ternational aims  are  idealistic ;  our  trade  policy  should  no  less 
rest  upon  ideals. 


VI 

EECIPKOCITY  1 

I  DO  not  propose,  in  the  following  pages,  to  consider  the 
details  of  the  reciprocity  arrangements  concluded  within 
the  last  year  or  two  under  the  provisions  of  the  tariff  act  of 
1890.  My  object  is  chiefly  to  discuss  the  mode  in  which  re- 
ciprocity treaties  usually  operate,  to  point  out  the  peculi- 
arities of  the  form  of  reciprocity  which  this  country  is  now 
applying,  and  to  say  something  of  the  general  bearing  of 
such  arrangements  on  the  problems  of  international  trade. 

The  mode  of  reciprocity  provided  for  in  the  McKinley 
Tariff  Act  is  unusual.  The  act  gives  authority  to  the  Presi- 
dent to  reimpose  duties  on  certain  articles  ordinarily  ad- 
mitted free  —  tea,  coffee,  molasses,  sugar,  hides  —  if  he  is 
satisfied  that  other  countries,  from  which  these  articles  are 
sent  to  the  United  States,  fail  to  reduce  their  duties  on 
American  goods  to  such  an  extent  as  to  constitute  a  reasonable 
equivalent  for  our  remission.^     In  other  words,  a  threat  of 

1  This  paper,  published  in  the  Quarterly  Journal  of  Economics  for 
October,  1892,  is  printed  here  without  change.  The  principles  stated 
in  it  have  not  been  impugned,  rather  strengthened,  by  subsequent  ex- 
perience. 

2  The  often-quoted  reciprocity  section  of  the  tariff  act  of  1890  may  be 
quoted  again :  "  That,  with  a  view  to  secure  reciprocal  trade  with  coun- 
tries producing  the  following  articles,  and  for  this  purpose,  on  and  after 
the  first  day  of  January,  1892,  whenever  and  so  often  as  the  President 
shall  be  satisfied  that  the  government  of  any  country  producing  and 
exporting  sugar,  molasses,  coffee,  tea,  and  hides,  raw  and  uncured,  or 
any  of  such  articles,  imposes  duties  or  other  exactions  upon  the  agri- 
cultural or  other  products  of  the  United  States,  which,  in  view  of  the 
free  introduction  of  such  sugar,  molasses,  coffee,  tea,  and  hides  into  the 
United  States,  he  may  deem  to  be  reciprocally  unequal  and  unreasonable, 

120 


Reciprocity  121 

imposing  duties  on  their  goods  constitutes  the  pressure 
brought  to  bear  on  foreign  countries.  The  usual  mode  of 
reciprocity  is  different.  It  does  not  threaten  the  imposition 
of  new  duties,  but  offers  the  reduction  of  existing  duties. 
That  the  United  States  adopted  a  form  of  reciprocity  which 
has  an  aspect  perhaps  of  greater  vigor  and  certainly  of  less 
courtesy  is  not  the  result  of  any  deliberate  policy.  Like  so 
many  things  in  our  tariff  legislation,  it  arose  without  pre- 
meditation. The  articles  to  which  the  reciprocity  provisions 
apply  had  already  been  made  free  of  duty  on  grounds  inde- 
pendent of  any  desire  to  further  foreign  commerce.  Tea, 
coft'ee,  and  hides  were  freed  from  duty  twenty  years  ago. 
The  abolition  of  the  sugar  duty  had  been  settled  in  the  early 
part  of  the  session  of  1890,  before  the  reciprocity  scheme 
emerged.  It  was  impossible  to  apply  to  these  articles  the 
usual  machinery  of  commercial  engagements ;  and,  when  a 
polic}^  of  reciprocity  was  suddenly  determined  on,  the  only 
way  of  carrying  it  out  was  the  peculiar  one  which  was  finally 
adopted,  as  an  afterthought,  in  the  tariff  act  of  1890. 

Before  discussing  the  workings  of  this  unusual  form  of 
reciprocity,  we  may  consider  briefly  the  effects  of  the  usual 
form  —  the  remission  or  reduction  of  duties  in  return  for 

he  shall  have  the  power  —  and  it  shall  be  his  duty  —  to  suspend,  by 
proclamation  to  that  effect,  the  provisions  of  this  act  relating  to  the 
free  introduction  of  such  sugar,  molasses,  coffee,  tea,  and  hides,  the 
production  of  such  country,  for  such  time  as  he  shall  deem  just,  and 
in  such  case  and  during  such  suspension  duties  shall  be  levied,  collected, 
and  paid  on  sugar,  molasses,  coffee,  tea,  and  hides,  the  product  of  or 
exported  from  such  designated  country,  as  follows":  on  sugar,  about 
one  cent  a  pound  on  the  ordinary  grades ;  molasses,  four  cents  a  gallon ; 
coffee,  three  cents  a  pound;  tea,  ten  cents  a  pound;  hides,  one  and  a 
half  cents  a  pound. 

The  negotiations  and  arrangements  which  finally  resulted  under  the 
provisions  of  the  act  of  1890  are  narrated  in  detail  in  the  Report  of  the 
United  States  Tariff  Commission  on  Reciprocity  and  Commercial  Trea- 
ties (1919).  The  Report  covers  not  only  the  period  of  the  tariff  of 
1890  (pages  145-192),  but  the  entire  experience  of  the  United  States 
in  reciprocity  matters. 


122  Free  Trade,  the  Tariff  and  Reciprocity 

similar  favors  by  foreign  countries.  Reductions  of  this  sort 
have  very  different  consequences  according  to  the  conditions 
under  vrhich  they  are  applied.  In  some  cases,  they  redound 
to  the  benefit  of  the  foreign  producer :  in  others,  they  redound 
to  the  benefit  of  the  domestic  consumer.  Some  consideration 
of  these  two  possible  effects  v^ill  be  helpful  for  the  under- 
standing of  the  general  workings  of  any  form  of  commercial 
engagement. 

Suppose  the  remission  of  duty,  under  the  usual  form  of 
reciprocity,  to  be  applied  to  one  country  only.  Suppose,  for 
example,  that  we  remitted  the  duty  on  coffee  coming  from 
Venezuela,  retaining  it  on  coffee  coming  from  other  coun- 
tries. The  Venezuelan  coffee-planters,  and  not  the  American 
consumers,  would  get  the  benefit  of  the  remission.  Vene- 
zuela supplies  —  or,  rather,  supplied  —  only  one-tenth  of  our 
consumption  of  coffee.  The  remaining  nine-tenths,  coming 
from  other  countries  and  still  paying  duty,  would  be  higher 
in  price  in  the  United  States  by  the  amount  of  the  duty. 
The  Venezuelan  coffee-planters  would  not  sell  their  coffee  for 
less  than  other  people  got:  why  should  they?  They  would 
simply  pocket  the  amount  which  otherwise  would  have  been 
paid  in  duties.  In  general,  it  may  be  laid  down  that  any 
remission  of  duty  which  does  not  apply  to  the  total  importa- 
tions, but  leaves  a  considerable  amount  still  coming  in  under 
the  duty,  puts  so  much  money  into  the  pockets  of  the  foreign 
producer. 

The  United  States  has  had  one  very  striking  experience 
of  this  sort  of  reciprocity.  The  treaty  made  with  the  Ha- 
waiian Islands  in  1876  stipulated  for  the  free  admission  into 
the  United  States  of  certain  commodities,  among  which  sugar 
was  the  most  important.  In  return,  we  got  similar  remis- 
sions in  the  Sandwich  Islands.  Hawaiian  sugar  was  ad- 
mitted free:  other  sugar  paid  duty.  The  Hawaiian  sugar 
formed  at  the  outset  only  a  small  fraction  of  the  total  supply ; 
and,  though  it  gre^  yer^  rapidly  under  the  treaty,  it  never 


Eeciprocity  123 

formed  more  than  a  tenth  of  the  supply.  It  was  sold,  natur- 
ally, at  the  same  price  as  other  sugar  paying  duty ;  and  the 
American  consumer  who  used  it  paid  a  tax  in  the  shape  of  a 
higher  price,  exactly  as  he  paid  a  tax  on  duty-paying  sugar. 
The  tax,  however,  went  not  into  the  national  treasury,  but 
into  the  profits  of  the  Hawaiian  sugar-raisers.  Throughout 
the  period  when  Hawaiian  sugar  was  free  and  other  sugar 
paid  duty,  the  price  of  sugar  on  the  Pacific  coast,  where  the 
Hawaiian  sugar  was  used,  was  fully  as  high  as  it  was  else- 
where. Whoever  got  the  benefit  of  the  remission  of  the  duty, 
it  was  not  the  consumer.  In  this  particular  case,  it  should 
be  added,  there  were  some  complicating  conditions.  The  cap- 
ital invested  in  sugar-raising  on  the  Sandwich  Islands  w^as 
largely  owned  by  Americans.  Consequently,  the  virtual  tax 
still  paid  by  sugar-consumers  inured  to  the  benefit  of  other 
Americans  rather  than  of  foreigners.  The  effect  was  much 
the  same  as  if  the  tobacco-growers  of  the  Connecticut  Valley 
had  been  freed  from  the  tobacco  tax  while  other  growers 
still  had  to  pay  it.  Further,  the  business  of  refining  this 
Hawaiian  sugar  on  the  Pacific  coast  got  into  the  hands  of  a 
single  establishment,  the  owners  of  which  were  largely  the 
same  persons  who  had  invested  capital  in  sugar-raising  in  the 
Sandwich  Islands.  These  fortunate  individuals  consequently 
added  the  profits  of  a  monopoly  of  sugar-refining  to  the  profits 
of  a  tax  paid  for  their  benefit  by  the  consumers  of  sugar. 
The  Hawaiian  treaty  therefore  presented  peculiarities  in 
more  respects  than  one.^  But  we  are  here  concerned  chiefly 
with  that  aspect  of  it  which  bears  on  the  subject  of  the  present 
article  —  the  eft'ect  on  sugar  consumers  and  producers.  It 
was  clearly  the  latter  who  benefited  by  the  arrangement. 
Suppose  now  a  different  sort  of  case  —  a  remission  of  duty 

3  What  is  said  here  refers  only  to  the  Hawaiian  episode  as  it  had 
developed  up  to  1892.  On  its  later  course  see  in  The  Tarilf  Commis- 
sion Report  on  Reciprocity,  pp.  103-136;  and  my  book  on  Some  Aspects 
of  the  Tariff  Question,  pp.  58-69. 


124  Free  Trade,  the  Tariff  and  Reciprocity 

not  to  a  single  country,  but  to  a  number  of  countries,  so  con- 
siderable and  important  that  all  the  importations  come  in 
free  of  duty.  Here  the  change  redounds  to  the  benefit  of  the 
domestic  consumer.  'No  articles  continue  to  come  in  paying 
duty,  and  the  remission  is  virtually  the  same  as  a  general 
reduction  or  abolition  of  the  duty.  The  effect  is  the  same  if 
the  favor  is  granted  to  only  one  country,  but  that  country  is 
able  to  supply  the  entire  consumption.  If,  for  instance,  by 
a  treaty  with  Australia,  wool  from  that  country  were  admitted 
free,  the  effect  would  be  the  same  as  relieving  fine  wool  en- 
tirely from  duty.  The  amount  of  such  wool  raised  in  Aus- 
tralia is  so  great  that  all  we  should  use  would  come  in  duty 
free ;  the  price  would  go  down  by  the  amount  of  the  previous 
duty;  the  domestic  purchasers  of  wool  and  eventually  the 
domestic  consumers  of  woolens  would  get  their  goods  so 
much  cheaper. 

The  most  important  illustration  of  this  effect  of  reciprocity 
treaties  in  recent  times  is  to  be  found  in  the  experience  of 
European  countries  after  the  famous  commercial  treaty  be- 
tween England  and  France.  France,  after  having  main- 
tained for  centuries  a  rigid  system  of  high  duties,  made  a 
treaty  with  England,  in  1860,  by  which  English  commodities 
were  admitted  at  very  moderate  rates.  England  in  return 
abolished  entirely  her  duties  on  silks,  and  lowered  her  duties 
on  French  wines.  The  changes  made  by  England  were,  from 
the  first,  of  general  application:  all  countries  were  free  to 
take  advantage  of  them.  France,  it  is  true,  began  by  extend- 
ing her  favors  to  England  only.  It  is  probable  that  even  if 
they  had  never  been  extended  to  other  countries,  they  would 
have  worked  like  our  supposed  remission  of  duty  on  Aus- 
tralian wool,  and  not  like  our  Hawaiian  treaty.  England 
would  have  been  able  to  supply  most  of  the  goods  in  ample 
quantity,  and  the  French  consumers  would  have  had  the  ben- 
efit of  the  remission.  But  any  doubt  on  this  point  was  set- 
tled by  the  prompt  conclusion  of  treaties  giving  the  same 


Reciprocity  125 

favors  to  other  countries  —  to  Germany,  Austria,  Belgium, 
Italy,  Switzerland,  and  so  on.  These  countries  were  given 
the  same  favors  as  England,  and  in  return  conceded  reduc- 
tion of  duties  on  French  goods.  In  effect,  therefore,  the  ma- 
chinery of  reciprocity  led  to  the  general  application  of  a 
more  liberal  tariff  system  in  France.  Moreover,  other  coun- 
tries were  led  by  the  example  of  France  to  the  same  course. 
Germany  (or,  to  speak  accurately,  the  Zollverein),  having 
concluded  the  treaty  with  France,  soon  made  similar  engage- 
ments with  other  countries;  Austria,  Belgium,  Switzerland, 
Italy,  followed  suit;  and  in  a  few  years  after  1860  Europe 
was  covered  with  a  network  of  commercial  treaties,  bringing 
about  a  great  moderation  in  the  general  tariff  policy  of  all 
the  continental  countries. 

A  more  recent  case  of  the  same  sort  is  to  be  found  in  the 
commercial  treaties  concluded  by  the  German  Empire  during 
the  present  year.  For  one  reason  and  another,  France  tired 
of  the  system  of  commercial  treaties,  and  has  just  substituted 
for  it  a  different  regime,  one  not  only  of  a  distinctly  pro- 
tectionist character,  but  involving  a  threat  of  higher  duties  on 
non-reciprocating  countries,  which  is  not  very  different  from 
the  sort  of  reciprocity  just  established  by  our  own  legislation. 
Oddly  enough,  at  the  very  moment  (1892)  when  France  is 
thus  dropping  her  commercial  treaties,  Germany  is  again 
entering  that  path.  The  recent  treaties  concluded  with  Aus- 
tria, Italy,  Belgium,  Switzerland,  provide  for  reciprocal  re- 
ductions of  duties,  which  amount  virtually  to  general  reduc- 
tions and  so  redound  to  the  benefit  of  the  consumers  in  the 
respective  countries.  Thus,  Germany  lowers  her  duties  on 
wheat  and  Indian  corn,  when  imported  from  the  treaty  coun- 
tries ;  but  this  reduction  has  already  been  extended  to  gi-ain 
coming  from  the  United  States,  and  undoubtedly  will  soon 
be  extended  to  Eussian  grain.  Of  the  bearing  of  this  latest 
move  of  Germany's  on  our  o^\m  reciprocity  scheme,  more  will 
be  said  presently.     So  far  as  German  consumers  are  con- 


126  Free  Trade,  the  Tariff  and  Reciprocity 

cerned,  they  will  certainly  get  the  benefit  of  the  change :  their 
bread  will  be  cheaper. 

Obviously,  the  probabilities  are  strong  that  a  remission 
of  duties  by  way  of  commercial  treaty  or  reciprocity  will  op- 
erate in  this  second  way.  Cases  like  our  Hawaiian  treaty 
are  rare:  a  country  will  not  often  accept  a  loss  of  revenue, 
and  transfer  a  gain  to  foreign  producers,  by  remitting  a  duty 
on  a  portion  only  of  its  imports.  Ordinarily,  the  remissions 
of  duty  by  treaty  to  favored  countries  become,  in  fact,  gen- 
eral remissions,  and  serve  simply  to  make  trade  more  free 
between  a  large  number  of  countries. 

From  this  sketch  of  the  character  and  working  of  the  or- 
dinary form  of  reciprocity,  we  may  turn  to  a  consideration 
of  the  peculiar  form  adopted  in  our  tariff  act  of  1890.  Here 
the  plan  is  not  to  remit  a  duty  for  countries  granting  favors, 
but  to  impose  one  for  countries  failing  to  grant  them.  A 
duty  so  imposed,  like  one  remitted,  may  have  very  different 
effects,  according  to  the  conditions  under  which  it  is  applied. 
As  the  remission  of  a  duty  may  or  may  not  operate  for  the 
benefit  of  the  domestic  consumer,  so  the  imposition  of  a  duty 
may  or  may  not  operate  to  his  detriment. 

Suppose,  for  example,  that  a  duty  is  imposed  on  coffee 
coming  from  Venezuela  —  a  duty  which  has  actually  been 
imposed  under  the  reciprocity  provisions.  The  revolution  in 
that  country,  as  it  happens,  has  complicated  the  effects  of  the 
measure ;  but  it  is  not  difficult  to  see  how  it  would  work  under 
undisturbed  conditions.  Venezuela  supplies  us  in  ordinary 
times  with  about  one-tenth  of  the  coffee  we  use.  The  re- 
mainder comes  from  other  countries,  chiefly  from  Brazil.  If 
a  duty  were  imposed  on  the  Venezuela  portion,  the  price, 
nevertheless,  would  not  rise  in  the  United  States ;  for  Brazil 
coffee  would  still  come  in  free,  and  somewhat  more  of  it 
would  quickly  come  this  way  if  the  price  rose.  The  Ven- 
ezuelans must  either  sell  their  coffee  to  us  at  a  price  lower 
by  the  amount  of  the  duty  —  i.e,,  they  must  pay  the  duty  — 


Reciprocity  127 

or  else  must  send  their  coffee  to  another  market.  The  latter 
result  would  undoubtedly  ensue.  It  might  take  time  to  form 
new  trade  connections,  and  might  cause  temporary  loss  to 
introduce  their  coffee  to  a  new  set  of  consumers ;  and  the  em- 
barrassment, while  it  lasted,  might  be  considerable.  But  it 
could  hardly  last  very  long ;  and  at  all  events  this  temporary 
loss  would  represent  the  effect  of  the  measure  on  the  non- 
reciprocating  country.  The  American  public  would  not  be 
affected. 

The  situation  would  be  very  different,  however,  if  the 
duty  were  imposed  on  coffee  coming  from  Brazil.  The  bulk 
of  our  coffee  comes  from  that  country,  and  it  would  be  dif- 
ficult to  secure  the  supply  from  other  sources.  Other  coffee 
would  indeed  come  in  duty  free;  but  it  could  not  begin  to 
supply  our  entire  consumption.  A  duty  on  Brazilian  coffee 
would  cause  the  price  to  rise  in  the  United  States,  and  the 
American  consumer  would  pay  the  tax.  Of  course,  the  price 
of  all  coffee  would  go  up  in  the  United  States  - —  not  only  of 
the  Brazilian  article,  but  of  an}^  other  of  the  same  sort  that 
might  also  come  in.  Producers  in  other  countries  would  get 
the  higher  price  of  coffee,  but  their  product  would  not  be 
subject  to  the  duty:  the  American  consumer  would  be  taxed 
for  their  benefit.  The  situation  would  be  virtually  the  same 
as  that  under  the  Hawaiian  treaty.  If  one  indispensable 
part  of  the  supply  is  taxed,  the  price  of  the  whole  supply 
goes  up :  those  producers  who  are  exempt  —  the  Hawaiian 
sugar-planters  in  the  actual  case,  the  non-Brazilian  coffee- 
planters  in  the  supposed  case  —  pocket  the  amount  of  the  tax. 

In  general,  then,  it  may  be  said  that  a  duty  imposed  under 
our  reciprocity  legislation  Avill  hurt  the  foreign  producer  — 
perhaps  hurt  him  only  for  a  time,  but  yet  hurt  him  —  if  he 
does  not  furnish  a  very  great  part  of  our  supply,  and  if  other 
countries  can  easily  step  in  his  place.  But  if  the  foreign 
producer  sends  us  the  bulk  of  the  supply,  and  if  others  can- 
not fill  his  place,  the  duty  will  tax  the  American  public, 


128  Free  Trade,  the  Tariff  and  Reciprocity 

and  will  put  money  into  tlie  pockets  of  other  foreign  pro- 
ducers. We  have  seen  how  a  duty  on  coffee  from  Brazil 
would  work.  A  duty  on  hides  from  the  Argentine  Republic 
would  probably  work  in  the  same  way.  Our  imported  hides 
come  in  large  part  from  that  country,  and  a  duty  on  them 
would  raise  their  price  here.  A  duty  on  sugar  from  Cuba 
would  work,  for  a  time  at  least,  in  the  same  way.  It  is  true 
we  are  not  so  dependent  on  Cuba  for  sugar  as  we  are  on 
Brazil  for  coffee.  Other  countries  contribute  to  our  sugar 
supply,  and  could  in  time  greatly  increase  their  contributions. 
But  Cuba  is  much  the  most  important  source  of  sugar  for  us, 
supplying  a  full  third  of  the  total  imports;  and  a  duty  on 
Cuban  sugar  would  cause  the  price  of  sugar  to  go  up.  After 
a  while,  no  doubt,  by  a  shifting  of  the  sugar  markets  and 
perhaps  some  changes  in  production,  other  countries  might 
send  enough  free  sugar  to  us  to  supply  our  entire  consump- 
tion, while  Cuban  sugar  would  go  to  England  and  to  other 
countries  not  discriminating  against  it.  But,  at  first,  we 
should  pay  more  for  all  our  sugar;  and  some  part  of  our 
extra  payments  would  go  to  the  countries,  other  than  Cuba, 
from  which  our  supplies  come. 

Practically,  however,  we  are  hardly  called  on  to  consider 
the  consequences  of  a  duty  on  Brazilian  coffee  or  on  Cuban 
sugar.  It  it  very  improbable  that  sucfh  duties  will  be  im- 
posed. The  President  is  not  likely  to  exercise  his  discre- 
tionary power  in  such  a  way  as  to  bring  about  a  tax  on  Amer- 
ican consumers,  least  of  all  a  tax  which  would  redound  in 
part  to  the  benefit  of  foreigners.  With  important  countries, 
like  Cuba  and  Brazil,  a  diplomatic  use  of  the  possibility  of 
discriminating  duties  will  be  relied  on.  With  the  Argentine 
Republic  the  situation  has  been  different.  The  financial  con- 
dition of  that  country  has  made  it  out  of  the  question  to 
secure  any  lowering  of  its  duties  on  American  goods;  yet 
no  duty  on  its  hides  has  been  imposed,  or  is  likely  to  be. 
Smaller  countries  can  be  brought  to  terms  with  ease.     One 


Reciprocity  129 

can  be  played  off  agaiust  the  other,  and  pressure  can  be 
brought  to  bear  on  them  with  little  danger  of  hurting  the  do- 
mestic consumer.  The  only  case  of  any  importance  in  which 
a  discriminating  duty  has  in  fact  been  imposed  is  that  of  Ven- 
ezuela, already  referred  to. 

So  much  as  to  the  effect  of  the  possible  imposition  of  our 
duties  on  the  American  consumer  and  the  foreign  producer. 
But  there  is  another  important  aspect  of  the  reciprocity  ques- 
tions —  the  effect  on  foreign  countries  of  the  concessions 
granted  by  them  on  American  goods.     How  will  these  work  ? 

We  ask  of  other  countries,  in  return  for  refraining  from 
duties  on  their  products,  concessions  of  the  usual  sort  — 
lower  duties,  or  none  at  all,  on  American  imports.  We  de- 
mand such  favors  chiefly  from  the  countries  of  South  Amer- 
ica and  Central  America.  The  very  list  of  articles  on  which 
the  reciprocity  clause  authorizes  duties  —  coffee,  tea,  sugar, 
molasses,  hides  —  points  to  these  countries.  The  mention 
of  tea,  it  is  true,  seems  to  indicate  that  some  effort  is  to  be 
made  with  China  and  India.  But  nothing  has  yet  been  done 
in  that  direction ;  and,  indeed,  the  conditions  here  are  in  any 
case  such  that  a  duty  would  prove  a  two-edged  sword.  There 
is  one  other  region  in  which  concessions  have  been  sought 
and  obtained,  and  of  which  a  word  may  be  said.  The  threat 
of  imposing  duties  on  beet-sugar  from  Germany  and  Aus- 
tria has  been  used  to  induce  these  countries  to  admit  Amer- 
ican articles  at  the  lower  rates  which  these  countries  have 
granted,  each  to  the  other,  by  the  treaties  concluded  in  the 
present  year,  to  which  reference  was  made  a  moment  ago. 
So  far  as  Austria  is  concerned,  these  lower  rates  are  nominal, 
since  the  articles  affected  are  such  as  the  United  States  never 
would  export  to  Austria  under  any  conditions.  With  Ger- 
many we  get  a  more  substantial  concession.  Some  agri- 
cultural products,  especially  wheat,  are  admitted  at  the  lower 
duties  of  the  new  treaty  tariff.  Clearly,  the  concession  is 
one  which  it  w^as  for  Germanj'-'s  own  advantage  to  make. 


130  Free  Trade,  the  Tariff  and  Reciprocity 

When  Hungarian  wheat  was  once  admitted  at  a  lower  duty, 
it  was  best  to  admit  American  wheat  also  at  the  same  rates. 
It  was  not  difficult,  therefore,  to  secure  this  favor  from  Ger- 
many in  exchange  for  a  promise  to  let  German  sugar  alone. 

But,  to  repeat,  it  is  the  South  American  countries  that 
the  reciprocity  scheme  chiefly  looks  to ;  and  it  is  in  the  con- 
cessions granted  by  them  that  we  are  likely  to  find  its  most 
important  effects. 

There  are  two  sorts  of  goods  which  we  may  send  to  the 
South  American  countries:  first,  goods  which  we  produce 
very  cheaply  and  in  great  abundance;  second,  goods  which 
we  do  not  produce  as  cheaply  as  European  countries.  In 
the  first  class  belong  most  agricultural  products,  especially 
breadstuffs  and  meats,  and  many  manufactures,  such  as  fur- 
niture, wooden  ware,  and  most  tools  and  implements.  In 
the  second  class  belong  articles  like  woolens,  linens,  crude 
iron,  and  many  miscellaneous  manufactures.  The  reader 
will  see  at  once  that  remissions  of  duties  will  have  very  dif- 
ferent effects  on  these  two  classes  of  goods.  On  articles  of 
which  breadstuffs  are  representative,  lower  duties  in  the 
South  American  countries  will  operate  virtually  as  lower 
duties  for  all  comers.  In  wheat,  flour,  meat  products,  the 
United  States  is  the  natural  source  of  supply  for  Cuba,  Bra- 
zil, and  other  countries.  Lower  duties  or  free  admission  will 
bring  lower  prices  to  the  consumers  in  the  South  American 
countries,  and  will  serve  to  enlarge  the  volume  of  trade  be- 
tween them  and  the  United  States.  That  same  holds  good 
of  those  manufactured  goods,  not  a  few  in  number  and  im- 
portance, in  which  we  have  advantages  in  production.  I  have 
mentioned  wooden  ware  and  furniture :  the  list  might  be  in- 
definitely extended.  A  wider  range  of  international  trade 
brought  about  in  such  articles  will  be  advantageous  to  both 
countries. 

The  advantage  to  the  United  States  from  such  arrange- 
ments is  almost  always  assumed,  in  current  discussions,  to  be 


Reciprocity  131 

secured  by  the  domestic  producer  of  the  exported  article,  and 
especially  by  the  fanner.  But  both  the  extent  and  the  dura- 
tion of  any  such  advantage  are  much  overrated.  Its  extent 
is  overrated,  because,  after  all,  the  volume  of  our  trade  with 
the  South  American  countries  is  small,  and  is  likely  to  re- 
main small.  The  bulk  of  our  agricultural  exports  goes  to 
Europe.  Its  duration  is  overrated,  because  any  increase  in 
foreign  demand  for  our  wheat  and  com  and  meats  is  likely 
soon  to  be  met  by  increased  production  at  home,  leaving  the 
producer  in  about  the  same  position  as  he  was  at  the  outset. 
The  real  and  permanent  gainers  will  be  the  consumers  in  both 
countries  —  the  consumers  of  our  breadstuff s  and  manufac- 
tures in  South  America,  and  our  own  consumers  of  the  com- 
modities imported  in  exchange  from  South  America  or  else- 
where. I  fear  it  will  be  long  before  this  mode  of  looking  at 
the  problems  of  international  trade  becomes  accepted  by  the 
general  public.  The  common  notion  is  still  that  the  great 
object  of  international  trade  is  to  sell,  to  dispose  of  the  ex- 
ports. No  doubt  the  process  by  which  a  gain  in  exports  re- 
dounds to  the  advantage  of  the  consumers  of  the  imports  is  a 
less  certain  and  unfailing  one  than  the  usual  expositions  of 
the  Eicardian  doctrine  would  lead  one  to  suppose :  here,  as 
elsewhere,  the  machinery  of  trade  works  out  its  permanent 
and  important  results  but  slowly.  Nevertheless,  it  is  certain 
that  the  consumers  of  the  imports  are  the  persons  who  gain 
in  the  long  run  by  an  enlargement  of  international  trade, 
whether  secured  by  reciprocity  or  any  other  way. 

Looking  now  at  the  second  class  of  goods  on  which  South 
American  countries  may  be  asked  to  concede  lower  duties,  we 
find  different  conditions.  These  are  goods  which  the  United 
States  does  not  produce  so  cheaply  as  foreign  countries. 
Here  a  remission  of  duties  might  cause  a  loss  of  revenue 
for  Cuba  and  Brazil,  without  a  gain  to  their  consumers. 
American  woolens,  for  instance,  might  make  their  way  in  at 
lower  duties,  and  yet  might  be  as  dear  as  English  woolens  at 


132  Free  Trade,  the  Tarijf  and  Reciprocity 

higher  duties.  In  such  a  case,  the  United  States  would  be 
in  the  ungracious  position  of  forcing  a  friendly  power,  by  a 
threat  of  duties  on  its  goods,  to  make  a  concession  which 
would  involve  a  clear  loss  to  its  own  citizens.  But  the  case 
is  not  one  likely  to  occur  in  practice.  Goods  of  this  sort  have 
not  been  usually  included  in  the  list  of  articles  on  which,  by 
the  treaties  recently  concluded,  duties  have  been  lowered  or 
abolished.  The  articles  affected  have  been  chiefly  of  the  class 
described  in  the  preceding  paragraph  —  those  which  the 
United  States  produces  abundantly  and  cheaply.  Bread- 
stuffs  have  been  by  far  the  most  important  among  them.  The 
manufactured  articles  enumerated  have  in  the  main  been  such 
as  we  make  to  at  least  as  good  advantage  as  other  countries. 
One  possible  exception  of  importance  is  in  the  case  of  cotton 
manufactures,  which  have  been  admitted  at  lower  duties  by 
some  of  the  treaties,  and  which,  in  the  qualities  demanded  by 
South  American  consumers,  our  New  England  manufacturers 
perhaps  could  not  supply  so  cheaply  as  those  of  old  England. 
It  may  be  said,  in  passing,  that  cotton  goods  are,  so  to  speak, 
on  the  line,  the  margin  of  difference  in  price  between  the 
American  product  and  the  European  one  being  a  very  narrow 
one.  In  such  cases,  the  choice  of  one  product  rather  than 
of  another  is  much  affected  by  custom,  tradition,  the  strong- 
hold of  established  connections.  A  reciprocity  arrangement, 
giving  the  United  States  a  preference  in  duties,  might  here 
shift  the  trade  into  American  hands  without  causing  any  real 
disadvantage  to  the  South  American  consumer. 

But  such  a  change,  merely  from  the  reciprocity  provisions, 
is  not  likely  to  take  place,  for  another  reason.  Any  lower- 
ing of  duties  which  reall}^  redounds  to  the  disadvantage  of 
the  domestic  consumer  is  not  likely  to  endure.  Such  reduc- 
tions are  certain,  sooner  or  later,  to  cease  to  be  preferential: 
they  will  be  given  to  all  comers.  As  I  have  already  said,  a 
discrimination  such  as  we  gave  the  Hawaiian  Islands,  leading 
to  loss  of  revenue  to  the  government  and  no  cheapening  in 


Reciprocity  133 

price  to  the  public,  is  very  exceptional.  The  experience  of 
European  countries  shows  that  favors  in  duties  soon  cease  to 
be  favors,  being  given  practically  to  all  countries.  The  South 
American  countries,  so  far  as  they  make  treaties  giving  the 
United  States  a  real  advantage  over  foreign  competitors, 
will  extend  their  provisions  to  foreign  countries.  And, 
surely,  no  generous-minded  American  would  wish  that  it 
should  be  otherwise.  Unless  we  regard  international  trade 
as  a  game  in  which  each  party  tries  to  overreach  the  other, 
we  must  put  our  relations  with  foreign  countries  on  a  basis 
which  insures  a  benefit  from  the  exchange  to  all  parties. 

The  net  result  of  the  reciprocity  arrangements,  therefore, 
will  probably  be  not  to  bring  special  gains  to  any  particular 
sets  of  producers,  but  to  enlarge  a  trifle  the  general  volume 
of  international  trade,  and  so  to  diffuse  more  widely  the  bene- 
fits of  the  division  of  labor  between  nations.  The  gain  to  the 
United  States  will  not  be  great  in  degree,  simply  because  the 
volume  of  our  trade  with  the  South  American  countries  is 
not  large,  nor  likely  for  some  time  to  become  large.  In  kind, 
the  gain  will  be  of  the  same  sort  as  would  ensue  if  we  lowered 
other  duties  or  induced  other  countries  to  lower  their  duties 
still  farther.  The  procurement  of  imported  commodities  in 
exchange  for  exports,  which  is  the  essential  benefit  of  inter- 
national trade,  is  usually  —  I  will  not  say  always,  but  usu- 
ally —  hampered  to  our  detriment  by  protective  duties.  If 
reciprocity  arrangements  for  lowering  or  abolishing  duties  on 
both  sides  are  advantageous,  a  moderation  of  our  protective 
duties  may  be  expected  to  be  also  advantageous. 


VII 
COST  OF  PKODUCTIOE^  AND  THE  TAEIFF  ^ 

The  vogue  of  the  plan  of  basing  the  tariff  on  differences  in 
costs  of  production  is  a  curious  phenomenon,  and  a  significant 
one.  Much  talked  of  as  the  plan  has  come  to  be,  it  is  novel, 
at  least  in  the  United  States.  Only  a  faint  suggestion  of 
something  of  the  sort  appeared  in  the  Republican  platform  of 
1904.  IsTot  until  the  presidential  campaign  of  1908  did  it 
receive  much  attention.  Then,  and  later  in  the  debates  on 
the  tariff  act  of  1909,  it  came  to  be  spoken  of  as  the  "  true  " 
principle  of  protection,  the  touchstone  by  which  the  justifica- 
tion of  every  duty  was  to  be  tested.  What  does  it  mean,  and 
how  far  will  it  avail  to  "  settle  '^  the  tariff  question  ? 

The  doctrine  has  an  engaging  appearance  of  fairness.  It 
seems  to  say,  no  favors,  no  undue  rates.  Offset  the  higher 
expenses  of  the  American  producer,  put  him  in  a  position  to 
meet  the  foreign  competitor  without  being  under  a  disadvan- 
tage, and  then  let  the  best  man  win.  Conditions  being  thus 
equalized,  the  competition  will  become  a  fair  one.  Protected 
producers  will  get  only  the  profit  to  which  they  are  reason- 
ably entitled,  and  the  domestic  consumers  are  secured  against 
prices  which  are  unreasonable. 

In  order  to  apply  the  principle,  an  enormous  expenditure 
of  money  is  necessary.  Hundreds  of  thousands  of  dollars, 
even  millions,  must  be  spent  in  order  to  ascertain  the  costs 
of  production  at  home  and  abroad  of  any  considerable  number 
among  the  protected  articles.  Moreover,  no  one  who  stops 
to  think  will  suppose  that  inquiries  of  this  sort  will  be  easy, 

1  The  Atlantic  Monthly,  December,  1910. 

134 


Cost  of  Production  and  the  Tariff  135 

or  will  lead  to  other  than  rough  and  approximate  results. 
"  Cost  of  production ''  is  a  slippery  phrase.  Costs  differ  in 
different  establishments,  and  cannot  be  figured  out  accurately 
in  any  one  establishment  without  an  elaborate  system  of  spe- 
cial accounts,  such  as  few  establishments  keep.  None  the 
less,  approximate  figures  are  to  be  had.  If  the  principle  is 
sound,  it  will  be  of  great  service  to  have  careful  preparation 
for  its  application,  and  to  reach  the  nearest  approach  to  ac- 
curacy that  the  complexities  of  industry  permit.  To  repeat 
—  how  far  is  it  all  worth  w^hile  ? 

Frankly,  the  answer  is  that  as  a  "  solution  "  of  the  tariff 
question,  this  much  paraded  ^'  true  principle  ''  is  worthless. 
Applied  with  consistency,  it  would  lead  to  the  complete  an- 
nihilation of  foreign  trade.  It  is  usually  thought  of  as  likely 
to  result  in  a  moderation  of  protection.  Yet,  if  carried  out 
to  the  full,  it  would  lead  to  the  utmost  extreme  of  protection. 

Consider  for  a  moment  what  equalization  of  cost  of  pro- 
duction means.  The  higher  the  expenses  of  an  American 
producer,  and  the  greater  the  excess  of  the  expenses  incurred 
by  him  over  those  incurred  by  a  foreign  competitor,  the  higher 
the  duty.  Applied  unflinchingly,  this  means  that  the  pro- 
duction of  any  and  every  thing  is  to  be  encouraged  —  not 
only  encouraged  but  enabled  to  hold  its  own.  If  the  differ- 
ence in  expenses,  or  cost,  is  great,  the  duty  is  to  be  high ;  if 
the  difference  is  small,  the  duty  is  to  be  low.  Automatically, 
the  duty  goes  up  in  proportion  as  the  American  cost  is  large. 
If  the  article  is  tea  in  South  Carolina,  for  example,  ascertain 
how  much  more  expensive  it  is  to  grow  the  trees  and  prepare 
the  leaves  than  it  is  in  Ceylon,  and  put  on  a  duty  high 
enough  to  offset.  If  it  is  hemp  in  Kentucky,  ascertain  how 
much  more  expensive  it  is  to  grow  it  than  in  Russia  or  in 
Yucatan  (for  the  competing  sisal),  and  equalize  conditions 
with  a  high  duty. 

It  was  on  this  ground  —  though,  to  be  sure,  with  gross 
exaggeration  as  to  the  facts  —  that  the  duties  on  lemons  and 


136  Free  Trade,  the  Tariff  and  Reciprocity 

prunes  were  raised  in  the  Payne- Aldrich  tariff :  equalize  con- 
ditions for  the  California  lemon-growers !  If  lemons  in 
California,  why  not  grapes  in  Maine  ?  They  can  be  grown, 
if  only  the  duties  be  made  high  enough.  Obviously,  the  more 
unfavorable  the  conditions,  the  higher  the  duties  must  be. 
The  climate  of  Maine  is  not  favorable  for  grapes ;  they  would 
have  to  be  grown  in  hot-houses.  But  make  the  duty  high 
enough,  handicap  the  foreign  producer  up  to  the  point  of 
complete  equalization,  and  the  grapes  can  be  grown.  So  as 
to  Kentucky  hemp,  or  Massachusetts  pig-iron.  Make  your 
duty  high  enough  —  and  on  this  principle  you  must  make 
your  duty  high  enough  —  and  anything  in  the  world  can  be 
produced.  The  inevitable  consequence  is,  however,  that  the 
more  unsuited  the  conditions  are  for  efficient  and  economical 
production,  the  greater  will  be  your  effort  to  bring  about  pro- 
tection. Under  this  equalizing  principle,  the  worse  the  natu- 
ral conditions,  the  more  extreme  will  be  the  height  of  pro- 
tection. 

[NTo  doubt  the  advocates  of  the  principle  will  say  that  it  is 
not  to  be  pushed  to  such  absurd  consequences.  But  where 
draw  the  line  ?  We  have  duties  in  our  present  tariff  of  fifty 
per  cent,  of  seventy,  or  one  hundred  -and  more,  all  of  which 
are  defended  on  this  ground.  Senator  Aldrich  remarked,  in 
the  course  of  the  debates  on  the  tariff  act  of  1909,  that  he 
would  cheerfully  vote  for  a  duty  of  three  hundred  per  cent, 
if  it  were  necessary  to  equalize  conditions  for  an  American 
producer.^     If  for  three  hundred  per  cent,  why  not  for  five 

2  "  If  it  costs  ten  cents  to  produce  a  razor  in  Germany  and  twenty 
cents  in  the  United  States,  it  will  require  one  hundred  per  cent  duty 
to  equalize  the  conditions  in  the  two  countries.  ...  As  far  as  I  am 
concerned,  I  shall  have  no  hesitancy  in  voting  for  a  duty  which  will 
equalize  conditions.  ...  If  it  was  necessary,  to  equalize  the  conditions 
and  to  give  the  American  producer  a  fair  chance  for  competition,  other 
things  being  equal  of  course,  I  would  vote  for  three  hundred  per  cent 
as  cheerfully  as  I  would  for  fifty." — Senator  Aldrich,  in  the  Congre9- 
Bional  Record,  May  17,  1909,  p.  2182. 


Cost  of  Production  and  the  Tariff  137 

hundred  or  one  thousand  per  cent  ?  Shall  we  say  that  the 
domestic  producer  whose  costs  are  so  high  as  to  require  a  duty 
of  thirty  per  cent  is  to  be  protected,  but  not  he  who  has  a 
disadvantage  of  fifty  or  a  hundred  per  cent  ?  The  only  con- 
sistent answer  is  the  Aldrich  one  —  give  him  all  he  needs  for 
equalization.  And  the  necessary  consequence  is  universal 
and  unlimited  protection. 

It  is  for  this  simple  reason  that  the  principle  seems  to  me 
worthless  for  settling  the  tariff  problem.  In  reality,  it  begs 
the  whole  question  at  issue.  That  question  is,  how  far  shall 
domestic  producers  be  encouraged  to  enter  on  industries  in 
which  they  are  unable  to  meet  foreign  competition?  The 
very  fact  of  their  being  unable  to  meet  it  shows  that  for  some 
reason  or  other  conditions  are  unfavorable.  Domestic  costs 
then  are  high ;  domestic  producers  are  under  a  disadvantage. 

The  free-trader  says  that  this  is  prima  facie  an  indication 
that  the  industry  had  better  not  be  carried  on  within  the 
country  at  all.  He  says,  further,  that  the  greater  the  dis- 
advantage and  the  higher  the  domestic  cost,  the  more  probable 
that  it  is  not  now  for  the  community's  good,  nor  ever  will  be, 
to  induce  labor  and  capital  to  go  into  the  industry  by  "  equal- 
izing "  the  conditions.  In  so  reasoning,  the  free-trader  is 
very  unmindful  of  political  and  social  considerations,  or  even 
blind  to  some  offsetting  gains  of  a  strictly  economic  kind. 
But  his  opponent,  the  protectionist,  in  setting  forth  the  equal- 
izing notion  as  the  '^  true  "  principle,  does  not  answer  him. 
This  principle  assumes  at  the  very  outset  that  any  and  every 
sort  of  domestic  production  is  advantageous,  and  that  there 
is  no  problem  as  to  the  limits  within  which  we  should  act  in 
bolstering  up  industries  that  cannot  stand  without  legislative 
aid. 

Underlying  the  ready  acceptance  of  this  "  true  "  principle 
are  two  widespread  beliefs  or  prejudices,  equally  unfounded. 
One  has  just  been  alluded  to  —  that  the  domestic  production 


138  Free  Trade,  the  Tarijf  and  Reciprocity 

of  an  article  is  in  itself  good.  The  other  is  that  high  wages 
are  the  result  of  the  tariff,  and  cannot  be  kept  up  without  the 
tariff. 

The  belief  that  the  production  of  a  thing  within  the  coun- 
try is  in  itself  advantageous  persists  with  extraordinary  vital- 
ity. It  runs  counter  to  the  universal  teaching  of  economists, 
and  on  any  careful  reflection  it  is  absurd.  Yet  it  is  main- 
tained —  though  by  implication  rather  than  expressly  —  in 
most  of  the  current  talk  about  the  effects  of  duties.  The 
tariff  act  of  1909,  for  example,  raised  some  duties  on  cottons, 
v^ith  the  object  of  causing  the  manufacture  at  home  of  fabrics 
previously  imported.  In  the  debates,  the  "  acquisition ''  of 
the  new  industry  was  spoken  of  as  manifestly  desirable.  The 
mere  fact  of  the  industry's  being  established  at  home  was 
thought  a  proof  of  gain.  So,  when  the  duty  on  tin  plates 
was  raised  in  1890,  the  domestic  production  of  the  plates  was 
adduced  as  conclusive  proof  of  the  wisdom  of  the  increase. 
The  previous  importation  of  these  things  was  thought  of  as 
having  been  a  losing  business ;  the  ensuing  production  at  home 
was  supposed  to  bring  so  much  national  profit. 

The  real  question  obviously  is,  which  of  the  two  ways  of 
securing  the  goods  is  the  better.  To  make  a  thing  at  home  is 
not  to  our  advantage  if  we  make  it  at  high  cost.  To  import 
it  is  not  a  source  of  loss  when  we  import  the  thing  more 
cheaply  than  we  can  make  it  at  home.  These  are  the  simplest 
conmaonplaces.  Yet  the  '^  true "  principle  runs  directly 
counter  to  them.  It  assumes  that  the  nation  gains  necessar- 
ily by  so  equalizing  conditions  that  anything  and  everything 
shall  be  made  at  home. 

On  no  subject  is  the  difference  between  the  economists  and 
the  general  public,  in  point  of  view  and  in  conclusions,  more 
marked  than  on  this  of  the  nature  of  the  gain  from  domestic 
and  foreign  supply.  On  other  current  topics  the  teachings 
of  the  economists  are  listened  to  with  attention  and  respect. 
On  money  and  banking,  on  taxation,  on  labor  matters,  on  the 


Cost  of  Production  and  the  Tariff  139 

regulation  of  railways  and  other  quasi-monopolistic  indus- 
tries, public  opinion  is  not  out  of  accord  with  them,  and  has 
been  markedly  influenced  by  them.  But  on  international 
trade  and  the  tariff  an  attitude  which  seems  obviously  absurd 
to  the  trained  student  is  tenaciously  held  by  an  immense  num- 
ber of  intelligent  legislators  and  citizens.  They  repeat  and 
repeat  the  ancient  fallacies  which  regard  imports  as  ominous 
and  exports  as  wealth-bringing. 

The  economists  are  by  no  means  unanimous  on  the  contro- 
versy between  protection  and  free  trade.  There  is  hardly 
one  among  them  who  would  not  admit  that  there  exist  valid 
arg-uments  for  protection.  But  the  grounds  on  which  some 
economists  go  so  far  as  to  think  the  weight  of  argument  to 
be  in  favor  of  protection,  and  others  confess  that  there  is  at 
least  something  to  be  said  for  it,  are  very  different  from  the 
grounds  commonly  put  forward  in  our  everyday  tariff  liter- 
ature. This  sort  of  disagreement  is  unfortunate  for  them 
and  for  the  community  also.  The  public  men  of  the  domi- 
nant party  have  become  almost  fanatically  intolerant.  They 
dismiss,  as  "  theoretical/^  propositions  which  seem  to  the 
teachers  and  writers  the  simplest  of  common  sense.  Clear 
thinking  and  cool  reasoning  on  all  the  great  questions  of  the 
day  are  impeded  by  this  disagreement  on  the  very  nature  of 
international  trade  —  on  the  fundamental  question  whether 
the  domestic  production  of  a  given  commodity  is  in  itself 
necessarily  advantageous  to  the  country. 

The  same  disagreement  appears,  though  perhaps  in  less 
overt  manner,  on  the  other  belief  which  gives  support  to  the 
equalizing  principle  of  protection :  namely,  that  wages  in  the 
United  States  are  high  because  of  the  protective  system,  or 
at  least  cannot  be  kept  high  without  it.  The  equalizing  prin- 
ciple, in  fact,  may  be  said  to  be  simply  a  revamped  form  of 
the  pauper-labor  argument.  The  American  employer,  it  is 
said,  finds  himself  compelled  to  pay  higher  wages  than  the 
foreign  employer.     He  is  in  danger  of  being  undersold  by  the 


140  Free  Trade,  the  Tarijf  and  Reciprocity 

cheap  product  of  pauper  labor.  He  cannot  hold  his  own  un- 
less the  foreigner  is  handicapped  by  duties.  The  belief  that 
tariff  duties  are  necessary  to  maintain  a  high  level  of  wages 
is  an  article  of  faith  for  probably  a  majority  of  American 
citizens.  Yet  this  also  is  opposed  to  the  universal  teaching 
of  economists. 

Consider,  for  a  moment,  the  case  of  exported  articles. 
They  are  not  higher  in  price  than  similar  articles  in  foreign 
countries.  They  must  be,  in  the  United  States,  somewhat 
lower  in  price  —  lower  by  the  cost  of  transportation  —  or 
else  they  could  not  be  sold  abroad.  Occasionally  an  article  is 
"  dumped,''  that  is,  sold  abroad  at  a  less  price  than  is  got 
for  it  at  home.  But  this  is  exceptional.  The  immense  mass 
of  things  we  export  —  raw  cotton  and  the  cheaper  cotton 
textiles,  bread-stuffs,  meat-products,  machinery,  woodenware, 
glassware,  shoes,  and  so  on  —  are  cheaper,  quality  for  qual- 
ity, than  similar  things  in  foreign  countries.  Yet  they  are 
made  with  high-priced  labor.  How  can  they  be  sold  cheap, 
when  high  wages  are  paid  to  those  who  make  them?  The 
answer  is  simple  enough.  The  labor  is  effective.  You  can 
pay  high  wages  and  yet  sell  cheap,  if  much  is  turned  out  by 
your  men. 

It  is  a  familiar  adage  in  the  business  world  that  an  efficient 
man  is  cheap  at  high  wages.  Yet  in  its  application  to  larger 
questions  this  adage  is  never  thought  of.  In  discussing  the 
tariff  and  wages,  people  assume  as  a  matter  of  course  that  the 
employer  who  pays  high  wages  must  therefore  sell  his  goods 
at  a  higher  price.  The  fact  is  that  if  the  labor  is  well-fed 
and  intelligent,  and  is  applied  under  good  natural  conditions 
and  with  skillful  leadership,  the  employer  can  turn  out  an 
abundant  product  (or  a  product  of  high  quality),  sell  it  cheap, 
and  still  pay  his  laborers  well.  And  the  real  source  and 
cause  of  general  high  wages,  says  the  economist,  is  precisely 
in  these  conditions:  efficient  labor,  good  natural  resources, 
skillful  industrial  leadership.     Given  these,  you  will  always 


Cost  of  Production  and  the  Tariff  141 

have  higher  wages,  and  need  not  fear  competition  from  cheap 
and  inefficient  labor. 

Further,  says  the  economist,  when  yon  try  to  equalize 
costs  of  production  everywhere,  you  induce  the  employer  to 
turn  to  industries  where  labor  is  not  efficient.  The  very- 
fact  that  costs  are  high  indicates  that  there  is  some  cause  of 
inefficiency.  You  divert  labor  and  capital  from  the  indus- 
tries that  are  best  worth  while,  diminish  the  general  product, 
and  so  diminish  the  source  from  which  all  the  wages  even- 
tually come.  The  argument  goes  back  to  the  position  stated 
a  moment  ago:  domestic  production  under  any  and  all  cir- 
cumstances is  not  necessarily  good ;  that  domestic  production 
is  good  which  is  carried  on  under  advantageous  conditions. 

I  will  not  enter  on  some  forms  of  the  labor  argument  that 
are  complicated,  and  lead  to  more  intricate  problems.  The 
great  broad  facts  of  the  case  are,  in  the  eye  of  the  economist, 
plain.  'No  respectable  writer  or  teacher  would  say  for  a 
moment  that  high  wages  are  due  to  the  tariff,  or  that  the 
maintenance  of  a  high  range  of  general  wages  (observe,  we 
speak  of  general  wages)  is  dependent  on  the  tariff.  The 
main  cause  of  generous  wages  is  at  bottom  a  very  simple  one : 
generous  productiveness  of  industry.  This  makes  possible 
the  combination  of  money  wages  that  are  higher  than  in 
other  countries  with  prices  that  are  as  low  as  in  other  coun- 
tries or  lower.  Given  the  all-round  efficiency  of  industry 
that  leads  to  this  happy  combination,  and  you  may  dismiss 
all  fear  of  being  undersold  and  ruined  by  the  competition 
of  pauper  labor.  Here  again  the  judgment  of  the  well- 
trained  and  thoughtful  differs  irreconcilably  with  that  domi- 
nant in  the  nation's  councils. 

From  all  this  it  might  seem  to  follow  that  inquiries  about 
relative  cost  of  production,  money-rates  of  wages,  equalization 
of  condition,  are  not  worth  while  at  all.  They  cannot  touch 
the  heart  of  the  tariff  problem:  this  really  is  whether  it  is 


142  Free  Trade,  the  Tariff  and  Reciprocity 

desirable  to  try  to  equalize  at  all.  And  yet!  I  believe  that 
such  inquiries  are  well  worth  while.  They  will  conduce  to 
a  better  understanding  of  the  tariff  situation,  and  are  likely 
to  lead  to  considerable  improvements  in  legislation.  They 
may  even  pave  the  way  to  something  like  a  settlement  of  the 
tariff  question. 

In  two  directions  the  investigation  of  relative  costs  of 
production  may  be  of  advantage:  as  to  undue  gains  in  mo- 
nopolistic or  quasi-monopolistic  industries;  and  as  to  the 
extent  to  which  there  are  vested  interests  which  must  be 
respected  in  a  future  settlement  of  the  tariff. 

The  protectionists  usually  assume  that  domestic  competi- 
tion will  prevent  any  excessive  profits  in  the  protected  indus- 
tries. In  most  cases  they  are  probably  right.  In  the  cotton 
manufacture,  for  example,  where  there  is  no  trust,  no  com- 
bination, no  monopoly,  high  duties  are  not  the  cause  of  per- 
manent high  profits.  In  the  debates  on  the  tariff  act  of  1909, 
certain  insurgent  senators  among  the  Republicans  protested, 
and  with  reason,  against  some  advances  in  the  rates  on  cotton 
goods ;  but  they  took  untenable  ground  in  putting  their  argu- 
ment on  the  basis  of  monopolies  and  monopoly  profits.  It  is 
true  that  when  a  new  duty  on  such  an  article  is  imposed, 
those  who  first  undertake  the  domestic  manufacture  may 
make  large  profits.  But  competition  in  due  time  sets  in.  If 
exceptional  gains  do  prove  to  be  permanently  maintained,  it 
must  be  because  some  mills  have  better  organization  and 
management  than  others,  or  shrewder  judgment  as  to  the 
caprices  of  fashion.  So  it  is  in  the  woolen  manufacture 
(even  though  here  there  is  much  more  of  combination  than 
in  the  case  of  cottons),  in  the  silk  manufacture,  and  so  on. 
The  real  question  in  such  cases  is  whether  it  is  worth  while 
to  encoui*&ge  a  domestic  industry  if  costs  of  production  are 
so  large  that  duties  of  sixty,  eighty,  one  hundred  per  cent 
are  called  for.  Most  branches  of  the  textile  industries  need 
no  duties  as  high  as  these  in  order  to  enable  them  to  hold 


Cost  of  Production  and  the  Tariff  14S 

their  own.  Many  can  hold  their  own  without  any  duties  at 
all.  But  certain  branches,  especially  in  the  finer  grades, 
clamorously  ask  for  extremely  high  rates;  and  then  their 
case  is  suspicious,  not  because  of  impending  monopoly  profits, 
but  because  of  the  presumption  that  they  had  better  not  be 
established  at  all. 

All  the  world  knows,  however,  that  combination  and 
monopoly,  though  they  are  not  in  possession  of  the  entire 
field  of  industry,  have  secured  control  of  large  sections  of  it ; 
no  doubt  tempered  more  or  less  by  potential  or  actual  compe- 
tition, but  still  with  such  degree  of  success  that  more  than 
competitive  profits  are  secured.  Where  this  is  the  case,  tariff 
duties  ma}^  bolster  up  the  profits,  by  shutting  out  at  least  the 
foreign  competitors.  Then  the  protective  system  really 
serves  to  rob  Peter  in  order  to  enrich  Paul ;  whereas,  under 
competitive  conditions,  it  only  robs  Peter  in  order  to  sustain 
Paul  in  an  unsuitable  industry.  If  the  duties  more  than  off- 
set Paul's  costs  of  production  (assuming  these  costs  to  be  in 
fact  higher),  they  give  a  chance  for  a  monopoly  squeeze. 
"Now  whether  they  do  so,  inquiries  on  the  facts  of  the  par- 
ticular case  may  make  clear.  The  vogue  of  the  "  true  ''  prin- 
ciple of  protection  is  unquestionably  promoted  by  a  wide- 
spread feeling  that  duties  are  more  than  enough  for  equaliza- 
tion, and  that  they  enable  the  trusts  to  secure  more  than  rea- 
sonable profits.  The  suspicion  is  doubtless  well-founded  in 
many  cases ;  how  far  so,  systematic  inquiry  alone  can  bring 
out. 

Again,  no  rational  person,  even  though  he  were  the  most 
radical  free-trader,  would  propose  to  abolish  at  one  fell  swoop 
protective  duties  to  which  a  great  industrial  system  had  ac- 
commodated itself.  We  may  not  like  the  result,  but  it  is 
there,  and  not  to  be  suddenly  modified  without  widespread 
loss.  Moreover,  those  engaged  in  the  industries  may  plead 
with  weight  that  they  have  entered  on  their  operations  with 
the  sanction  of  the  government,  nay,  with  its  direct  encourage- 


144  Free  Trade,  the  Tariff  and  Reciprocity 

ment,  and  that  the  government  cannot  in  justice  leave  them 
in  the  lurch.  Thus,  our  Department  of  Agriculture  has  been 
preaching  beet  sugar  for  the  last  fifteen  years,  urging  farmers 
and  manufacturers  to  undertake  it,  supplying  not  only  seeds 
and  agricultural  instructions,  but  directions  as  to  manufac- 
turing. In  the  arid  and  semi-arid  regions  of  such  states  as 
California,  Colorado,  Utah,  beet-growing  (with  sugar-mak- 
ing) seems  to  have  an  independent  basis ;  but  in  the  states  of 
the  corn-belt,  Michigan,  for  example,  it  rests  on  the  un- 
stable prop  of  the  tariff.  The  Michigan  sugar-makers,  egged 
on  as  they  have  been  by  the  government,  have  a  claim  on  the 
ground  of  vested  interest.  We  are  not  free  to  deal  with  the 
sugar  duty  as  we  were  twenty  years  ago;  nor  indeed  are  we 
free  to  deal  radically  with  any  of  the  protective  duties  needed 
for  the  maintenance  of  established  industries. 

But  the  question  always  arises :  How  far  are  vested  inter- 
ests in  fact  involved  ?  How  high  must  the  duties  really  be  in 
order  to  enable  the  status  quo  to  be  maintained?  On  this 
topic  I  believe  there  is  an  enormous  amount  of  exaggeration. 
Probably  the  greater  part  of  our  existing  duties  are  needlessly 
high,  on  the  very  principle  of  equalization.  This  is  the  case 
not  only  with  the  obviously  nominal  duties  on  wheat,  com, 
oats  —  articles  regularly  exported,  and  as  cheap  here  as 
abroad  —  but  with  those  on  many  manufactured  articles,  such 
as  most  grades  of  cottons,  almost  all  boots  and  shoes,  furni- 
ture and  woodenware,  iron  in  crude  and  manufactured  form, 
glassware,  and  a  host  of  miscellaneous  manufactures. 

The  dependence  of  our  manufacturing  industries  on  tariff 
duties,  to  repeat,  is  enormously  exaggerated.  The  constant 
shouting  about  foreign  pauper  labor  has  brought  about  a 
state  of  pusillanimity  among  the  manufacturers  themselves. 
Most  of  them  know  virtually  nothing  about  foreign  condi- 
tions. They  are  familiar  only  with  their  own  business  and 
with  that  which  touches  their  daily  routine.  Foreign  com- 
petition has  been  non-existent  for  years.     What  its  real  pos- 


Cost  of  Production  and   the  Tariff  145 

sibilities  are,  they  do  uot  know.  But  the  politicians,  and 
those  few  shrewder  manufacturers  who  have  cleverly  formed 
plans  for  aid  to  special  industries,  have  incessantly  predicted 
wholesale  ruin  unless  the  tariff  system  were  maintained  with- 
out the  change  of  a  dot.  I  know  of  a  case  in  which  the  super- 
intendent of  a  textile  mill,  an  Englishman  who  had  had  ex- 
perience both  in  his  native  country  and  here,  told  an  in- 
quirer that  goods  could  be  turned  out  by  the  mill  quite  as 
cheaply  in  the  United  States  as  in  England;  whereas  the 
owner  told  the  same  inquirer  on  the  same  day  that  the  mill 
would  have  to  be  shut  up  within  twenty-four  hours  if  the 
tariff  were  touched.  Like  thousands  of  manufacturers,  this 
owner  was  in  a  state  of  ignorant  panic  about  foreign  com- 
petition. 

A  searching  inquiry  would  show,  I  am  convinced,  that  our 
present  system  of  extremely  high  duties  could  be  greatly 
pruned  without  any  disturbance  of  vested  interests.  The 
direct  effect  of  such  a  change  would  be,  no  doubt,  more  nomi- 
nal than  real.  Except  in  the  case  of  trust-controlled  articles 
(and  there  are  not  so  many  of  these  raised  in  price  by  the 
tariff  as  the  free-traders  commonly  suppose),  a  reduction  of 
duties  on  this  basis  would  bring  no  lowering  in  prices  and  no 
advantage  to  consumers.  It  would  mean  only  the  placing  of 
a  new  set  of  figures  on  the  statute-book.  But  it  would  have 
some  important  advantages  none  the  less,  and  very  likely 
some  considerable  ulterior  consequences. 

One  great  gain  from  such  an  overhauling  of  the  tariff  would 
be  to  lessen  its  importance  in  the  public  mind.  To  the  econ- 
omist nothing  is  more  nauseating  than  the  cry  about  pros- 
perity and  the  tariff.  Erom  much  of  the  current  campaign 
talk,  one  would  suppose  that  the  country  would  go  to  certain 
ruin  if  a  single  duty  were  reduced  by  a  fraction  of  a  per  cent. 
Manufacturing  industries  in  general  are  in  the  main  not 
dependent  on  protection.  This  country  of  ours  is  certain  to 
be  a  great  manufacturing  one  under  any  tariff  system. 


146  Free  Trade,  the  Tariff'  and  Reciprocity 

Still  less  is  our  general  prosperity  dependent  on  tlie  tariff. 
Our  natural  resources,  our  vigor,  industry  and  intelligence, 
our  training  in  school  and  college  and  shop,  the  enterprise 
and  judgment  of  our  business  leaders  —  these  are  the  things 
on  which  material  welfare  depends.  Grreat  harm  has  been 
done  by  the  persistent  stress  on  legislation,  and  especially  on 
restrictive  legislation,  as  the  mainstay  of  prosperity.  Our 
manufacturers  and  other  producers  need  to  learn  to  keep  cool 
and  to  rely  on  their  enterprise  and  skill. 

Further,  a  readjustment  of  duties  simply  on  the  basis  of 
equalization  —  that  is,  on  the  basis  of  conserving  vested  in- 
terests and  maintaining  industries  as  they  are  —  would  lead 
to  a  more  critical  attitude  on  the  tariff  question.  It  would 
be  seen  that  a  great  range  of  industries  could  get  on  with 
duties  much  moderated  or  no  duties  at  all.  Others  would  be 
shown  to  need  high  duties  in  order  to  maintain  themselves. 
Such  differences,  resting  on  the  varying  disadvantages  of  the 
several  industries,  would  hardly  fail  to  raise  the  question  - — 
which  sorts  of  industries  are,  after  all,  the  better  for  the 
country,  those  whose  costs  are  high,  or  those  whose  costs  are 
low  ?  If  there  are  plenty  of  manufactures  which  can  get  on 
with  low  duties  or  none  at  all,  is  it  worth  while  to  start  up 
others  which  need  high  duties?  Suppose  it  to  be  admitted 
that  we  must  continue  to  prop  up  for  an  indefinite  time  those 
which  now  need  high  rates,  shall  we  encourage  new  ones 
which  demand  still  higher  rates  in  order  to  equalize  their 
costs  of  production  ? 

I  am  by  no  means  sure  that  questions  of  this  sort  would  be 
coolly  asked  or  would  be  rationally  considered.  The  pro- 
tective notions  in  their  cruder  form  have  a  most  tenacious 
hold,  especially  that  notion  of  the  inherent  advantage  of  ^'  ac- 
quiring ''  any  and  every  industry  at  home.  Yet  a  system  of 
duties  really  adjusted  with  care  and  precision  on  the  basis  of 
cost  of  production  might  be  expected  to  help,  not  only  in 


Cost  of  Production  and  the  Tariff  147 

sharper  scrutiny,  but  in  more  discriminating  judgment  on 
the  whole  tariff  problem. 

What  has  been  said  in  the  preceding  paragraphs  rests  on 
a  free-trade  basis;  that  is,  it  rests  on  the  assumption  that  it 
is  good  for  a  country,  not  to  produce  anything  and  everything 
at  home,  but  to  allow  a  process  of  selection  or  experiment  in 
determining  which  among  the  various  possible  industries  are 
the  best  for  it. 

I  would  not  have  the  reader  infer  that  I  am  an  unqualified 
free-trader,  or  that  this  view  of  the  tariff  problem  leads  im- 
mediately, or  even  ultimately,  to  complete  abolition  of  all 
except  revenue  duties.  The  case  in  favor  of  free  trade  has 
indeed  always  seemed  to  me  prima  facie  strong;  and  pro- 
longed investigation  and  reflection  have  served  to  confirm  me 
in  this  opinion.  But  it  is  only  a  prima-facie  case.  There 
may  be  offsetting  advantages  which  rebut  the  presumption. 
A  consideration  of  these  calls  for  some  very  delicate  balancing 
of  losses  and  gains.  It  would  be  necessary  to  consider  the 
young-industries  argument,  which  used  to  be  the  mainstay 
of  the  protectionist,  and  now  is  pooh-poohed  by  their  op- 
ponents, but  seems  to  me  still  to  point  to  some  possibilities  of 
ultimate  gain.  Again,  there  are  political  and  social  argu- 
ments as  to  the  avoidance  of  extremes  and  of  undue  fluctua- 
tions in  industry.  Few  economists  nowadays  would  say  that 
there  is  one  good  tariff  policy,  and  one  only,  applicable  to  all 
countries  and  all  conditions. 

But  few  economists  would  say  a  good  word  for  such  an 
exaggerated  protectionist  policy,  one  so  intolerant  of  foreign 
competition  and  foreign  supply,  as  the  United  States  followed 
in  the  McKinley  tariff  of  1890,  in  the  Dingley  tariff  of  1897, 
and  in  the  Payne-Aldrich  tariff  of  1909.  AVhen  duties  of 
fifty,  eighty,  and  one  hundred  per  cent  come  to  be  looked 
upon  as  normal  protectionist  rates;  when  ingenious  devices 


148  Free  Trade,  the  Tariff  and  Reciprocity 

and  "  jokers  "  are  resorted  to  in  order  to  bring  about  sucb 
high  rates  without  its  being  made  plain  that  this  is  the  thing 
really  aimed  at  and  accomplished ;  when  by  the  log-rolling 
process  the  policy  comes  to  be  applied  indiscriminately  to  any 
and  every  ai^icle,  without  scrutiny  of  the  possibility  of  ulti- 
mate cheapening  or  the  promise  of  social  or  political  gain  — 
then  it  is  time  to  call  a  halt,  and  to  begin  a  process  of 
thorough  overhauling.  This  is  the  point  of  view  not  only  of 
the  teachers  and  trained  students  of  economics,  but,  I  feel 
sure,  of  the  immense  majority  of  cool-headed  and  sensible 
people  in  this  country. 

Adam  Smith  —  an  ardent  though  by  no  means  unqualified 
free-trader  —  thought  in  1776  that  the  adoption  of  a  free- 
trade  policy  by  Great  Britain  was  quite  beyond  the  bounds 
of  possibility.  Had  Adam  Smith  lived  to  see  what  changes 
took  place  in  the  course  of  the  century  following,  he  would 
probably  have  said  in  1876  that  free  trade  would  never  be 
abandoned  by  any  country  which  had  once  adopted  it.  Who 
would  venture  on  a  prediction  now?  It  is  among  the  possi- 
bilities that  Great  Britain  herself  will  turn  again  to  some  sort 
of  restrictive  trade  policy.  I  would  not  undertake  to  fore- 
tell whether  free  trade  will  be  abandoned  in  Great  Britain,  or 
protection  in  the  United  States.  But  the  outlook  is  certainly 
for  a  moderation  of  extreme  protectionist  policies.  The 
various  nations  which  have  stirred  each  other  to  measures  of 
commercial  warfare  —  and  the  United  States  ha:,  been  most 
aggressively  guilty  in  this  regard  —  seem  to  be  wearying  of  a 
game  which  each  can  play  with  effect  against  the  other. 

The  indications  are  for  some  sort  of  compromise  all 
around;  an  illogical  proceeding,  perhaps,  but  a  very  human 
one.  In  this  moderated  course  of  action  the  United  States  is 
likely  to  join ;  and  all  sorts  of  persons,  whatever  their  opin- 
ions (or  lack  of  opinions)  as  to  the  goal  ultimately  to  be 
reached,  will  think  and  vote  in  favor  of  pruning  a  protection- 
ist system  which  h^?  becgme  so  rigidly  and  intolerantly  re~ 
strictive  as  ours. 


VIII 

A]^  INQUIKY  ON  THE  COSTS  OF  WOOL  AND 
OF  WOOLENS  1 

The  Tariff  Board  Report  on  Wool  and  Woolens  fills  four 
volumes,  1200  pages  in  all.  It  contains  a  mass  of  valuable 
information.  Even  those  v^ho  have  followed  the  previous 
literature  on  the  subject,  official  and  unofficial,  cannot  fail  to 
find  here  new  and  helpful  material.  Whatever  be  the  serv- 
iceability of  the  report  toward  settling  legislation,  its  useful- 
ness to  the  honest-minded  inquirer  cannot  be  doubted. 

The  matter  of  the  report  divides  itself  into  two  parts,  one 
on  wool,  the  other  on  the  manufactures  of  wool.  The  former 
of  these  is  distinctly  more  satisfactory  than  the  latter.  The 
passages  on  wool  are  well  arranged,  well  put  together,  well 
indexed,  well  summarized.  Those  on  w^oolens  have  much 
more  the  appearance  of  being  thrown  together  with  some 
haste,  and  it  is  not  easy  to  make  out  what  the  results  finally 
come  to.  The  less  satisfactory  character  of  the  report  as 
regards  woolens  is  probably  due  to  haste  in  preparation.  It 
was  long  obvious  that  the  Administration  desired  to  present 
to  Congress  a  specimen  of  the  kind  of  work  which  the  Tariff 
Board  was  doing.  There  was  pressure  to  have  at  least  one 
important  report  ready  early  in  the  session  of  Congress,  and 
the  Board  doubtless  was  called  upon  to  show  its  hand  before 
it  was  ready. 

In  the  report  on  wool,  as  in  all  of  the  inquiries  of  the 

"i- American  Economic  Review,  June,  1912.  The  reader  should  bear  in 
mind  that  the  Tarijff  Board  whose  work  is  here  discussed  is  that  which 
was  established  by  President  Taft  in  1910  and  was  abolished  in  1912. 
It  ii  not  the  Tariff  Commission  created  by  Congress  in  ldl6. 

149 


160  Free  Trade,  the  Tariff  and  Reciprocity 

Tariff  Board,  costs  of  production  in  the  United  States  and  in 
foreign  countries  figure  largely.  The  theory  on  which  the 
Board  was  set  to  work  has  been  that  ^'  scientific  "  tariff  revi- 
sion should  rest  upon  ascertained  differences  between  cost  in 
the  United  States  and  in  foreign  countries.  An  investigation 
of  this  sort,  however,  in  the  case  of  commodities  of  the  ex- 
tractive group,  is  beset  by  difficulties,  obvious  enough  to  the 
economist.  Costs  vary  according  to  the  nature  of  the  sources 
of  supply.  Some  localities  have  advantages  over  others, 
some  produce  more  cheaply  than  others.  Which  cost  shall  be 
taken  as  decisive  or  representative,  the  highest  or  lowest  ?  In 
the  case  of  wool  this  difficulty  is  increased  by  further  compli- 
cations. Wool  is  a  joint  product  with  mutton,  and  wool  and 
mutton  together  are  often  joint  products  of  general  farming. 
How  disentangle  a  separate  cost  of  wool  ? 

The  mode  in  which  the  Tariff  Board  has  grappled  with  the 
problem  is  instructive ;  and  it  seems  to  me  to  have  been  well 
chosen.  "  Cost  "  of  wool  is  reckoned  by  first  ascertaining  the 
total  flock  cost  —  that  is,  the  expenses  directly  incurred  by 
the  farmer  for  his  sheep  in  the  way  of  food,  care,  shelter. 
The  Tariff  Board  has  wisely  disregarded  the  land  in  reckon- 
ing this  cost.  In  the  statements  presented  at  hearings  before 
congressional  committees,  interest  on  the  value  of  the  land 
is  usually  reckoned,  not  only  with  regard  to  wool  but  with 
regard  to  wheat  and  other  staples,  as  part  of  the  cost  of  pro- 
duction of  agricultural  produce.  Whether  or  not  influenced 
by  considerations  of  economic  theory,  the  Tariff  Board  has 
thrown  out  this  item,  without  stopping  to  consider  niceties 
about  the  significance  of  rent  on  land.  The  direct  cost  alone 
is  considered.  From  this  direct  cost  there  are  deducted  all 
receipts  from  other  sources  than  wool ;  that  is,  mainly  the 
mutton  receipts.  The  difference  is  then  taken  to  represent 
the  separate  cost  of  the  wool.^ 

2  The  reader  interested  in  economic  theory  may  compare  the  procedure 
with  that  sui^gested  by  Professor  Marshall  in  his  "  Principles  of  Eco- 
nomics," bk.  V,  ch.  6,  section  4,  note  2  (p.  388,  sixth  ed.). 


An  Inquiry  on  the  Costs  of   Wool  and  of   Woolens       151 

The  cost  of  wool  thus  ascertained  shows  extraordinary  di- 
vergences in  different  parts  of  the  United  States.  Three 
great  regions  are  distinguished  and  for  these  the  following 
general  results  are  stated : 

Number         Cost 
of  sheep        of  wool 

1.  The  region  of  general  farming,  extending 

from  the  Missouri  River  eastward  over 

almost  the  whole  of  the  country 10,000,000  nil 

2.  The  territory  or  range  region 35,000,000  11  cents 

3.  Ohio  region 5,000,000  19     " 

These  figures  of  "  cost/'  as  the  Board  emphasizes,  are  of  a 
very  rough  sort,  indicating  the  general  situation  in  the  several 
regions.  They  are  averages.  Within  each  region  there  are 
great  differences.  Even  if  these  be  neglected,  the  general 
figures  indicate  how  extraordinarily  diverse  are  the  condi- 
tions in  different  parts  of  the  country. 

In  the  first  region,  that  of  ''  general  farming,"  the  con- 
clusion that  the  cost  of  wool  is  nil  means  simply  that  the 
direct  expenses  of  farmers  on  account  of  their  sheep  are  met 
usually  by  the  receipts  from  mutton.  Sheep  are  kept  in 
small  numbers  on  each  farm ;  their  keep  costs  very  little ;  they 
are  almost  always  crossbreds  —  that  is,  of  the  breeds  yielding 
good  lamb  and  mutton.  Even  what  the  farmer  gets  from 
the  mutton  is  usually  so  much  net  gain.  Certainly  what  he 
gets  for  the  wool  cannot  be  said  to  cost  him  anything.  In 
other  words,  in  this  region,  sheep-raising  and  wool-growing 
w^ould  be  maintained  irrespective  of  any  duty  upon  wool. 
Abolition  of  the  duty  would  mean,  at  the  most,  that  even  more 
attention  than  at  present  would  be  given  to  the  mutton-yield- 
ing breeds  of  sheep. 

In  the  territory  region,  where  much  the  largest  part  of  the 
wool-growing  takes  place,  the  situation  is  different.  Within 
that  region  there  are  again  greatly  varying  conditions.  The 
Tariff  Board  divides  it  into  three  sub-regions :  a  Southwestern 


162  Free  Trade,  the  Tariff  and  Reciprocity 

district,  including  Texas,  Arizona,  'New  Mexico,  and  the  like ; 
a  California  district;  and  a  ^Northwestern  district,  including 
Idaho,  Washington,  Oregon,  and  the  rest  of  the  IN'orthwestem 
states.  These  three  districts,  however,  can  be  reduced  to  two ; 
the  southern  part  of  California  is  similar  to  the  first  of  them, 
the  northern  to  the  third.  In  the  first  the  conditions  seem 
to  have  much  similarity  to  those  in  Australia.  The  climate 
is  mild ;  no  winter  shelter  is  needed.  The  meager  precipita- 
tion, which  imposes  an  almost  insuperable  obstacle  to  cattle 
raising,  presents  none  so  serious  to  sheep-growing.  The 
sheep  are  mostly  of  merino  breed,  hardy  and  easily  herded. 
They  are  kept  chiefly  for  wool.  Cost  of  production  is  lower 
here  than  in  any  part  of  the  United  States,  and  very  likely 
as  low  as  in  competing  foreign  countries.  In  the  ^NTorthwest, 
on  the  other  hand,  the  climatic  factors  influence  both  the  ex- 
pense of  wool-growing  and  the  character  of  the  flocks.  More 
winter  shelter  is  needed  and  more  harvested  crops.  There  is 
a  tendency  to  cross-breds,  and  mutton  is  looked  to  for  a  con- 
siderable part  of  the  revenue,  either  directly  or  by  the  sale 
of  sheep  for  fattening  in  the  corn-growing  region.  Harvested 
crops  are  resorted  to  in  considerable  degree. 

l^Not  less  important  is  the  circumstance  that  wherever  set- 
tled agriculture  is  possible,  either  from  sufiicient  local  pre- 
cipitation or  through  irrigation,  farming  treads  on  the  heels 
of  wool-growing.  This  phenomenon,  constant  in  the  eco- 
nomic history  of  the  United  States,  is  now  unmistakably  to 
be  seen  in  the  West  and  Northwest.  In  Texas  the  number 
of  sheep  has  declined  as  the  eastern  part  of  the  state  has  been 
settled  by  farmers.  The  same  has  been  the  case  in  those 
parts  of  California  which  have  been  put  under  the  plow  or 
converted  into  orchards.  It  is  certain  that  Washington  and 
Oregon  will  not  long  remain  important  ranching  states. 
Throughout  Idaho,  Montana,  and  Wyoming,  wherever  irriga- 
tion or  dry  farming  is  possible,  the  flocks  of  sheep  will  pass 
away.     Only  in  those  regions  which  because  of  their  limited 


An  Inquiry  on  the  Costs  of  Wool  and  of  Woolens      153 

water  supply  are  necessarily  pastoral  will  ranching  maintain 
itself.  And  even  in  these,  cattle  are  likely  to  be  more  profit- 
able than  sheep.  This  general  tendency  is  showing  itself  in  a 
steadily  increasing  ^'  cost  of  production  "  for  sheep  and  wool ; 
and  it  brings  it  about  that  within  this  region  itself  there  are 
differences  in  the  facilities  and  profitableness  of  sheep-raising 
as  great  as  those  in  widely  separated  parts  of  the  United 
States. 

Finally,  in  the  third  and  smallest  region  of  all,  we  find 
the  highest  cost  and  the  most  peculiar  conditions  of  produc- 
tion. In  eastern  Ohio  and  in  near-lying  parts  of  Pennsyl- 
vania and  West  Virginia,  and  in  some  parts  of  Michigan, 
there  is  a  sort  of  enclave  in  which  sheep-raising  seems  to  be 
carried  on  with  an  approach  to  obstinacy.  Industrially  of 
little  consequence,  it  has  been  politically  of  surprising  in- 
fluence ;  for  it  long  contributed  more  than  any  other  section 
of  the  country  toward  the  maintenance  of  wool  duties  and  so 
of  the  general  protective  system.  Here  large  flocks  of  merino 
sheep  are  kept  by  Ohio  farmers  on  land  that  is  hilly,  easily 
eroded,  and  not  adaptable  to  the  agricultural  methods  com- 
mon in  the  Mississippi  Valley.  It  is  true  that  in  some  parts 
of  this  region  the  farmers  have  turned  their  attention  to 
mutton  breeds  of  sheep  and  therein  have  found  profit  in  the 
same  way  as  other  farmers  of  the  central  region.  But  it  is 
not  difficult  to  read  between  the  lines  in  the  Board's  noncom- 
mittal pages  that  there  is  some  stolid  persistence  in  old  prac- 
tices, perhaps  also  some  insuperable  difficulty  in  the  way  of 
using  the  land  otherwise.^     At  all  events,  here  we  find  the 

3  I  quote  some  passages  referring  to  the  "  Upper  Ohio  Valley  region  ": 
"  Some  farms  produce  lambs  that  are  sold  fat  after  feeding  them  a 
greater  or  less  time  in  the  fall  and  winter.  A  flock  managed  in  this 
way  returns  usually  a  good  amount  from  its  lamb  sales,  so  much  that 
the  charge  against  wool  is  often  entirely  met.  On  such  a  farm  the 
wool  is  not  considered  the  chief  source  of  income.  Much  as  in  England 
it  is  a  side  product  —  more  important,  proportionally,  than  in  England ; 
yet  from  the  fat  lambs  comes  the  greater  return.     It  is  rare  that  sheep 


164  Free  Trade ^  the  Tariff  and  Reciprocity 

highest  cost  of  wool,  and  on  that  basis  the  greatest  need  for 
protection. 

Such  are  the  facts  stated.  What  light  now  do  the  results 
of  the  whole  investigation  throw  on  the  expediency  of  main- 
taining the  duty  on  wool,  or  on  the  rate  of  duty  which  should 
he  levied,  if  one  is  to  be  maintained?  I  confess  that  the 
situation  seems  to  be  in  no  sensible  degree  cleared  up  for  the 
legislator.  So  far  as  the  general  expediency  of  the  duty  on 
wool  is  concerned,  he  must  still  reach  his  conclusion  upon 
general  principles.  If  he  thinks  that  there  is  something 
precious  in  the  domestic  wool  supply,  and  something  porten- 
tous in  a  considerable  increase  of  imports,  he  must  still  be  in 
favor  of  retaining  a  considerable  duty.  If  he  has  any  such 
beliefs  as  are  embodied  in  the  young  industries  argument  — 
if  he  thinks  a  duty  should  be  maintained  only  if  it  will  lead 
eventually  to  supply  of  the  entire  domestic  consumption  by 
domestic  producers,  at  prices  not  higher  than  those  in  foreign 
countries  —  then  he  must  give  up  once  for  all  any  hope  of 
attaining  the  desired  end  as  regards  wool.  It  is  proved  to 
the  hilt  that  the  possibility  of  extending  the  domestic  supply, 
outside  of  the  region  of  general  farming,  is  negligible.     Sheep 

farms  managed  skillfully  on  this  system  do  not  show  some  profit.  The 
question  may  be  asked,  Why,  then,  do  not  all  of  the  sheep  breeders  of  the 
Ohio  Valley  and  Michigan  follow  this  system?  The  answer  is  that  on 
hill  farms  especially  it  is  not  easy  to  grow  the  corn  necessary  to  fatten 
lambs.  Then,  the  owners  of  many  flocks  have  not  yet  learned  to  adapt 
their  systems  of  agriculture  to  this  practice;  they  have  long  been  ac- 
customed to  looking  to  wool  for  their  chief  profit  from  sheep-breeding  " 
(p.  548). 

"  From  the  foregoing  it  seems  important  for  the  sheep  farmers  of  the 
hill  regions  of  Ohio,  Pennsylvania,  and  West  Virginia  to  seek  wherever 
possible  to  produce  fat  lambs  as  an  effective  means  of  abating  their 
wool  costs.  There  are,  however,  certain  difficulties,  some  of  them  seri- 
ous, in  the  way.  In  much  of  the  region  in  question  the  plow  is  of  little 
use.  The  hillsides  are  too  steep  for  cultivation.  The  land  readily 
erodes,  and  there  is  never  a  surplus  of  corn  nor  even  always  a  suffi- 
ciency of  hay.  Before  growers  here  can  adopt  new  methods  they  must 
buy  corn,  and  this  often  at  high  prices,  and  as  they  are  not  accustomed 
to  speculation,  this  would  not  appeal  to  them"  (p.  550). 


An  Inquiry  on  the  Costs  of  Wool  and  of  Woolens      155 

raising  in  large  herds  is  certain  to  become  less  rather  than 
greater.  The  retention  or  increase  of  the  duty  may  con- 
ceivably aid  in  maintaining  the  supply  at  its  present  figure, 
but  it  can  bring  about  no  considerable  increase.  All  this, 
however,  was  known  before.  The  report  simply  confirms  the 
conclusion  already  reached  by  well-informed  inquiries.* 

For  myself,  everything  in  the  report  strengthens  the  con- 
viction which  I  have  long  held  and  declared,  that  there  is  no 
good  ground  for  maintaining  a  duty  upon  wool.  But  that 
conclusion  rests  upon  general  reasoning  with  regard  to  the 
working  of  international  trade  and  of  protective  duties,  which 
m-ay  indeed  find  illustration  in  the  working  of  our  wool 
duties,  but  which  is  neither  reached  nor  confirmed  by  all  such 
labored  investigation.  The  strength  of  the  wool  duty  lies 
not  in  economic  reasoning,  but  in  the  inevitable  wish  of  every 
industry  in  every  part  of  the  country  to  get  its  share  of  what 
seem  to  be  the  benefits  of  protection.  It  is  absurd  for  the 
wheat-growers  to  protest  against  the  abolition  of  a  wheat  duty 
which  is  of  no  consequence  to  them.  But  all  the  current  talk 
about  protection  makes  them  think  that  they  are  losing  their 
"  share "  of  the  benefits.  Even  more  strongly  the  wool- 
growers  feel  that  they  are  entitled  to  their  '^  share  "  of  the 
benefits  of  protection.  Under  such  circimistances  the  in- 
vestigation of  the  Tariff  Board  supplies  ammunition  for  either 
party,  but  will  not  enable  either  to  rout  the  other. 

Again,  supposing  that  there  is  to  be  a  duty  on  wool,  what 
rate  shall  be  imposed  ?  Shall  it  be  a  rate  sufficient  to  pro- 
tect the  obstinate  grower  of  merino  wool,  or  the  grower  of 
the  Southwest,  or  the  waning  pastoral  industry  of  the  North- 
west? I  know  no  ground  upon  which  one  or  the  other  of 
these  costs  of  production  should  be  accepted  as  decisive. 
Here,  as  elsewhere,  if  you  give  a  duty  high  enough  to  equal- 
ize cost  of  production  for  the  producer  having  greatest  ex- 

*  It  has  been  proved,  for  example,  beyond  question  in  the  pages  of 
Profeasor  Wright's  "  Wool  Growing  and  the  Tariff." 


156  Free  Trade,  the  Tariff  and  Reciprocity 

pense,  jou  give  more  than  enough  for  the  one  who  has  less 
expense.  If  you  give  a  duty  sufficient  only  for  the  producer 
whose  expense  is  least,  you  reach  a  free  wool  basis,  and  at  all 
events  sacrifice  some  of  the  producers  less  advantageously 
situated. 

There  remains  one  subject,  however,  on  which  the  Board's 
report  states  less  uncertain  conclusions  —  the  mode  in  which 
a  duty  upon  wool,  if  levied  at  all,  should  be  assessed.  The 
Board  recommends  unqualifiedly  that  any  duty  should  be 
reckoned  hereafter  upon  the  scoured  content  of  the  wool.  As 
every  one  who  has  dealt  with  the  subject  knows,  raw  wool 
varies  immensely  as  regards  the  impurities  which  it  contains. 
Some  wool  loses  three-fourths  or  four-fifths  of  its  weight  in 
scouring  and  preparation  for  manufacture.  Other  wool  loses 
but  one-fifth  or  one-fourth  of  its  weight.  The  present  specific 
duty  (that  of  the  tariff  of  1909)  of  eleven  cents  a  pound  upon 
raw  wool  necessarily  bears  more  heavily  on  that  which  shrinks 
most  in  scouring  and  loses  most  in  manufacture;  and  it  has 
proved  virtually  prohibitive  of  the  importation  of  some 
grades  of  wool,  especially  those  which  come  from  the  Argen- 
tine region.  This  anomaly  has  long  been  recognized;  the 
only  question  has  been  on  the  best  mode  of  readjustment. 
One  remedy  is  to  impose  the  duty  upon  an  ad  valorem  basis ; 
the  other  is  to  impose  it  according  to  the  quantity  of  scoured 
wool  contained  in  the  fleece.  Space  lacks  for  entering  on  a 
detailed  consideration  of  the  merits  of  these  propositions. 
The  scoured  basis  seems  to  be  not  impossible  of  reasonably  ac- 
curate application,  but  is  open  to  the  objection  that,  like  any 
specific  duty,  it  bears  with  greater  relative  weight  on  coarse 
wools  than  on  fine  wools.  The  ad  valorem  method  avoids 
this  difficulty,  but  is  open  to  objections  of  its  own.  llDder- 
valuation  is  always  tempted  and  is  always  hard  to  control; 
and  a  duty  by  value  tends  to  exaggerate  the  fluctuations  in 
domestic  market  prices.  Yet  it  is  to  be  said  that  both  these 
difficulties  become  less  in  proportion  as  the  ad  valorem  rate 


An  Inquiry  on  the  Costs  of  Wool  and  of  Woolens      157 

is  lower;  they  would  be  serious  with  a  rate  as  high  as  50  per 
cent  (roughly  the  equivalent  of  the  present  duty),  but  neg- 
ligible with  one  of  10  per  cent.  The  Tariff  Board's  recom- 
mendation of  the  second  method  —  a  duty  on  scoured  basis  — 
bears  every  evidence  of  having  been  reached  after  careful  and 
unbiased  consideration.  Either  method  would  be  better  than 
the  present.  But  there  is  only  one  plan  which  gets  rid  of 
the  objections  —  the  good  and  simple  plan  of  admitting  wool 
free  once  for  all. 

With  regard  to  woolens  the  situation  is  in  one  important 
respect  essentially  different.  Here  there  would  seem  to  be 
no  inherent  difficulty  in  making  comparisons  of  cost  produc- 
tion. Manufacturing  industries  are  not  necessarily  carried 
on  under  conditions  of  varying  cost.  Is  it  not  possible  to 
ascertain  with  reasonable  accuracy  the  difference  between 
cost  of  production  of  woolens  within  the  country  and  without 
the  country  ? 

To  this  suggestion  it  has  often  been  answered  that  we  find 
in  manufactures  differences  of  cost  no  less  great  than  in  the 
extractive  industries.  Cost  is  not  uniform  within  a  country, 
any  more  than  it  is  uniform  between  countries.  Some  estab- 
lishments in  the  United  States  produce  more  cheaply  than 
others ;  we  encounter  here,  as  with  regard  to  wool,  the  diffi- 
culty of  ascertaining  which  among  varying  costs  of  produc- 
tion is  to  be  decisive  in  regulating  tariff  rates.  The  diffi- 
culty seems  to  me  not  insuperable ;  yet  the  method  by  which 
it  might  be  most  successfully  met  has  not  been  followed,  at 
least  with  any  consistency,  in  the  Tariff  Board's  report.  To 
remove  it,  resort  must  be  made  to  something  like  Professor 
Marshall's  device  of  the  ^'  representative  firm."  Though 
there  be  differences  in  facilities  between  different  establish- 
ments in  the  United  States,  it  is  not  unreasonable  to  disre- 
gard those  managed  with  unusual  ability  and  also  those  neg- 
ligible because  backward  or  still  in  the  earl}^  and  experimen- 


158  Free  Trade,  the  Tariff  and  Reciprocity 

tal  stage.  The  device  calls,  no  doubt,  for  some  artificializa- 
tion  of  the  data :  the  construction  of  an  imaginary  establish- 
ment, not  perhaps  corresponding  precisely  to  any  specific 
business,  yet  fairly  to  be  regarded  as  indicative  of  the  normal 
conditions  of  the  trade.  The  Tariff  Board,  however,  has 
not  chosen  to  adopt  any  method  of  this  kind.  Its  pages  are 
full  of  detailed  statements  of  cost,  chiefly  for  establishments 
in  the  United  States,  but  for  some  establishments  in  Euro- 
pean countries  also.  Yet  these  inquiries  seem  never  to  be 
brought  to  a  form  in  which  direct  and  complete  comparison 
is  possible,  or  in  which  clear-cut  results  are  stated.  Possibly 
this  may  be  due  to  the  fact,  already  referred  to,  that  the  pub- 
lication of  the  Board's  report  was  called  for  before  its  work 
had  been  carried  to  the  final  stages.  Possibly  it  may  be  due 
to  a  hesitancy  on  the  Board's  part  in  presenting  anything  but 
specific,  concrete  facts.  ]^o  doubt  there  would  have  been 
severe  criticism  of  hypothetical  or  generalized  figures.  No 
doubt,  also,  such  figures  could  indicate  only  the  general  trend 
of  the  differences  between  countries.  But  approximate  solu- 
tions on  matters  of  this  kind  are  the  only  ones  obtainable.  I 
cannot  but  believe  that  legislation  on  the  lines  expected  from 
the  Tariff  Board's  report  would  have  been  facilitated  by 
statements  which,  though  representative  and  therefore  ap- 
proximate, were  in  simple  and  summary  form. 

At  all  events  the  legislator  who  is  endeavoring  to  apply  the 
cost  of  production  theory  to  the  revision  of  the  duties  on 
woolens  will  find  it  necessary  to  do  much  digging  of  his  own 
into  the  voluminous  pages  of  the  Tariff  Board's  report.  He 
will  find  abundant  proof  that  the  duties  as  they  stand  now 
are  not  fixed  on  the  basis  of  differences  in  cost  of  production 
with  any  approach  to  accuracy.  But  just  what  duties  would 
conform  to  these  differences,  he  will  not  find  it  easy  to  make 
out. 

On  one  important  topic,  however,  a  perfectly  clear  result  is 
reached.     It  is  established  beyond  question  that  the  compen- 


An  Inquiry  on  the  Costs  of  Wool  and  of  Woolens      159 

sating  system  is  completely  out  of  gea.T.^  In  this  result  I 
take  some  personal  satisfaction.  I  have  maintained  for 
years  that  it  has  been  incorrect  and  in  need  of  complete  over- 
hauling. Persons  like  myself,  when  making  statements  of 
this  sort,  have  been  dubbed  theorists,  ignorant  of  the  actual 
working  of  the  system.  The  system  itself  has  been  lauded  as 
perfect  by  those  who  may  be  presumed  to  be  most  fully  con- 
versant with  it.  The  Board's  report,  however,  makes  it  clear 
that  the  compensating  duties  much  more  than  compensate. 
Those  who  have  maintained  that,  in  the  guise  of  compensa- 
tion for  the  wool  duty,  the  rates  on  woolens  have  been  higher 
than  they  purported  to  be,  find  full  support.  Those  who  have 
endorsed  the  compensating  system  as  it  stands  and  have  pro- 
tested against  even  the  slightest  change  in  it,  surely  have 
followed  a  mistaken  policy.  It  is  inevitable  that  suspicion 
should  attach  to  the  utterances  of  persons  who  have  persist- 
ently contended  that  things  were  true  which  are  now  proved 
not  to  be  true.  'No  doubt  the  fear  of  the  wool-growers  and 
manufacturers  that  even  the  slightest  change  in  Schedule  K 
might  precipitate  the  complete  collapse  of  the  system,  ex- 
plains their  insistence  that  it  was  without  flaw.  None  the 
less,  in  view  of  the  present  unanswerable  demonstration 
that  the  system  needs  thorough  overhauling,  their  attitude 
must  be  judged  to  have  been  impolitic. 

On  some  other  subjects  also  the  Tariff  Board  reaches  con- 
clusions that  are  clear-cut.  It  establishes  the  fact  that  at 
least  in  some  branches  of  woolen  manufacturing,  efficiency 

5  That  is,  the  system  followed  in  almost  all  the  tariff  acts  enacted 
since  1861,  providing  for  two  distinct  duties  on  woolen  goods:  first,  a 
"  compensating "  duty,  specific  in  form,  designed  merely  to  offset  the 
effects  of  the  duty  on  wool  in  causing  the  manufacturer  to  pay  higher 
prices  for  this  raw  material;  and  second,  an  ad  valorem  duty,  which 
alone  was  supposed  to  yield  protection.  In  the  tariff  acts  of  1894  and 
1913  there  was  of  course  no  compensating  (specific)  duty,  since  these 
acts  admitted  wool  free.  I  have  discussed  in  detail  the  history  and 
working  of  the  compensating  system  in  my  book  on  Sotne  Aspects  of  the 
Tariff  Queation,  chapter  xx. 


160  Free  Trade,  the  Tariff  and  Reciprocity 

is  low  and  cost  of  production  is  high  in  the  American  mills. 
Possibly  the  deficiencies  of  the  American  establishments  are 
exaggerated.  As  one  reads  these  parts  of  the  document,  a 
suspicion  arises  of  an  endeavor  to  make  the  case  strong  in 
favor  of  the  maintenance  of  high  duties.  An  obvious  and 
sometimes  amusing  consequence  of  the  protectionist  doctrine 
about  cost  of  production  is  that  a  domestic  producer  is  thought 
to  be  entitled  to  higher  protection  according  as  his  operations 
are  conducted  to  greatest  disadvantage.  If  his  machinery  is 
not  of  the  best,  or  his  operatives  are  clumsy,  or  his  mill  badly 
located,  his  cost  of  production  of  course  becomes  high  ;  and  on 
that  ground  he  is  entitled  to  ask  for  higher  duties.  There  are 
repeated  passages  in  the  report  dealing  with  the  disadvan- 
tages of  the  American  woolen  manufacturer  because  of  his 
more  expensive  machinery  or  his  less  efficient  labor  supply. 
I  do  not  recall  a  passage  in  which  attention  was  called  to 
any  advantages.  Possibly  there  are  none  —  not  a  solitary 
point  of  superiority;  possibly  the  American  manufacturer 
operates  at  higher  expense  in  every  direction.  Yet,  to  re- 
peat, one  is  led  to  suspect  that  his  difficulties  are  exaggerated, 
or  that  he  has  himself  exaggerated  them  in  his  dealings  with 
the  Tariff  Board,  in  order  to  supply  arguments  for  the  main- 
tenance of  existing  duties. 

Certain  it  is  that  the  description  is  one  which  puts  weapons 
in  the  hands  of  those  who  scoff  at  the  cost-of-production  prin- 
ciple. It  is  repeatedly  stated,  for  example,  that  the  working 
force  in  the  American  mills  is  ineffective.  Operatives  in 
foreign  countries  are  said  to  be  more  intelligent,  better 
trained,  more  steady  at  their  work.  The  newly  arrived  immi- 
grants who  throng  the  American  mills  are  declared  to  be 
poor  factory  hands.  The  question  may  fairly  be  asked.  Why, 
then,  induce  them  to  enter  this  occupation  ?  Is  it  to  the 
country's  advantage  that  an  Italian  or  a  Greek  should  be 
brought  over  here  to  work  for  us  at  eight  or  ten  dollars  a 
week,  when  a  German  or  a  Frenchman  is  willing  to  do  the 


An  Inquiry  on  the  Costs  of  Wool  and  of  Woolens       Kil 

same  work  for  us  iu  his  native  country  at  five  or  six  dollars  ? 
Or  to  put  the  same  sort  of  question  in  another  form,  Would 
all  wages  in  the  United  States  be  higher,  and  would  this 
really  be  a  prosperous  country,  if  our  manufacturing  estab- 
lishments and  our  agriculture  throughout  were  carried  on  by 
ignorant  and  inefficient  workmen,  equipped  with  tools  and 
machines  no  better  than  those  of  foreign  countries  ? 

So  far  as  machinery  is  concerned,  the  extent  to  which  the* 
American  worsted  manufacturers  are  dependent  upon  im- 
ported machinery  is  surprising.  Continued  resort  to  foreign 
machinery  always  raises  a  suspicion  of  inferiority  in  techni- 
cal methods.  Machinery  is  almost  sure  to  be  installed  better 
and  operated  better  in  the  country  where  it  is  made.  A 
country  which  depends  upon  imported  appliances  thereby 
confesses  to  not  being  in  the  van  of  industrial  progress.  Such 
is  the  case  with  the  European  countries  when  they  import 
American  shoemaking  machinery.  Such  is  the  case  with 
continental  Europe  when  it  im.ports  English  machinery  for 
spinning  fine  cottons.  Such  seems  to  be  the  case  in  the 
worsted  mills  in  the  United  States  with  regard  to  the  worsted 
processes.  The  report  states  that  in  our  worsted  mills  80 
per  cent  of  the  machinery  used  for  the  processes  from  scour- 
ing to  the  finished  yarn  (not  goods),  is  imported.  The  fig- 
ures are  even  more  striking  with  some  particular  kinds  of 
machinery.  The  so-called  French  combs  (the  continental 
system)  are  imported  without  a  single  exception;  so  are  the 
worsted  spinning  machines  and  some  of  the  dravdng  frames. 
Of  the  Bradford  frames  90  per  cent  are  imported.  There  is 
a  striking  difference  between  these  figures  and  those  for  other 
kinds  of  machinery.  Of  the  looms,  over  three-fourths  are  of 
domestic  make,  not  of  foreign  make.  It  is  an  interesting 
feature  of  industrial  development  in  the  United  States  that 
weaving  machinery  has  always  been  made  chiefly  by  Ameri- 
can machine  builders,  and  apparently  has  been  worked  by 
the  textile  manufacturers  themselves  to  better  advantage.     In 


162  Free  Trade,  the  Tariff  and  Reciprocity 

all  the  textile  industries  —  cottons  and  silks  even  more  strik- 
ingly than  woolens  —  looms  are  chiefly  of  American  make; 
and  they  are  at  least  as  good  as  foreign  looms,  often  better. 
Practically  all  the  carding  machines  used  in  the  wool  manu- 
facture are  also  domestic ;  so  are  the  spinning  machines  used 
for  carded  wool.  To  repeat,  it  is  in  the  characteristic 
branches  of  the  worsted  industry  as  distinguished  from  the 
woolen  industry,  that  the  dependence  upon  foreign  machinery 
is  most  striking;  and  most  is  also  said  of  the  inferiority  of 
the  operatives  in  the  worsted  mills. 

Precisely  the  same  question  of  principle  presents  itself 
here  as  with  regard  to  the  cost  of  production  of  wool.  Are 
disadvantages  of  the  American  manufacturer  a  reason  for 
supporting  him  with  high  duties,  or  are  they  a  reason  for 
regretting  that  he  has  been  supported  by  duties  at  all  ?  The 
answer  cannot  be  given  by  the  most  labored  investigation.  It 
raises  a  fundamental  question  about  which  the  legislator  has 
to  make  up  his  mind  by  reasoning  which  the  data  of  the  Tariff 
Board  may  illustrate,  but  on  which  they  can  prove  nothing. 
That  question  is  the  fundamental  one  between  protection  and 
free  trade.  But  what  immediately  concerns  the  country  is 
the  much  simpler  controversy  between  more  protection  and 
less;  between  the  present  tariff  (that  of  1909)  with  all  its 
extremes  and  a  pruned  and  moderated  system.  Even  pro- 
tectionists admit  that  duties  should  not  be  more  than  suffices 
to  offset  differences  in  cost;  even  free-traders  admit  that  re- 
gard must  be  had  to  the  vested  interests  of  those  who  have 
been  encouraged  to  embark  in  industries  that  labor  under  dis- 
advantages. Hence  it  is  not  inconsistent  to  admit  the  value 
of  the  Tariff  Board's  work,  even  though  rejecting  the  prin- 
ciple of  "  scientific  "  revision  which  led  to  the  Board's  estab- 
lishment. Possibly  this  report  might  have  promoted  revision 
with  better  effect  if  more  time  had  been  allowed  for  prepara- 
tion ;  perhaps  also  if  more  courage  had  been  shown  in  sum- 
marizing and  emphasizing  the  results.  But  none  the  less  it 
does  promote  a  much  needed  readjustment. 


IX 

HOW  TARIFFS  SHOULD  NOT  BE  MADE  ^ 

In  the  course  of  inquiries  on  the  legislative  history  of  the 
Tariff  Act  of  1909,  I  encountered  some  episodes  character- 
istic of  the  tariff-making  methods  which  have  long  been  fol- 
lowed in  the  United  States.  These  episodes  will  be  described 
in  the  present  paper.  The  changes  in  duty  which  resulted 
w^ere  not  of  great  consequence.  Most  of  them  affected  arti- 
cles that  are  petty  in  comparison  with  the  important  and 
much  debated  articles.  But  the  cases  were  typical  and  in- 
structive. Concrete  examples  show  better  than  any  general 
statement  what  has  been  our  practice  in  the  past,  and  what 
are  the  reasons  for  substituting  a  procedure  more  open,  more 
deliberate,  more  closely  scanned. 

During  the  session  of  1908-09  the  committees  of  the  House 
and  Senate  followed  different  policies  in  preparing  the  tariff 
bills  for  the  respective  legislative  bodies.  The  House  com- 
mittee on  Ways  and  Means  held  many  hearings  and  printed 
every  document  submitted  to  it.  The  Senate  committee  of 
Finance  held  no  hearings  and  published  nothing.  'No  doubt 
the  hearings  before  the  House  committee  were  often  unprofit- 
able, and  usually  were  extremely  wearisome  to  the  committee 
members.  They  gave  occasion,  too,  for  much  political  fenc- 
ing. None  the  less,  a  great  mass  of  material  useful  for  un- 
derstanding the  tariff  situation  was  submitted,  and  was 
printed  in  the  eight  bulky  volumes  of  Hearings;  sl  set  of 
documents  which,  it  may  be  added,  was  indexed  and  arranged 
with  unusual  care.  At  all  events  the  House  committee  pro- 
ceeded openly.     Just  what  happened  in  the  Senate  committee 

^American  Economic  Review,  March,  1911. 

163 


164:  Free  Trade,  ihe  Tariff  and  Reciprocity 

nobody  knows.  But  it  is  an  open  secret  that  individual  mem- 
bers were  approached  by  influential  persons  interested  in  the 
tariff ;  that  a  mass  of  typewritten  matter  was  submitted ;  and 
that  there  was  expectation  of  considerable  amendment  at  the 
hands  of  Senate  leaders.  The  main  difference  between  the 
procedure  of  the  two  committees  —  publicity  in  the  one  case, 
non-publicity  in  the  other  —  should  be  borne  in  mind  when 
reading  what  follows. 

The  first  episode  to  which  I  shall  call  attention  is  the 
change  in  the  duty  on  structural  steel.  In  the  preceding 
tariff  acts  (1890,  1894,  and  1897)  the  general  trend  had  been 
toward  a  reduction  of  the  duties  on  iron  and  steel.  The 
process  of  reduction  was  continued  in  1909  for  most  iron  and 
steel  products  —  for  iron  ore,  pig  iron,  crude  steel,  steel 
rails.  In  the  bill  as  reported  by  the  House  committee  and 
as  passed  by  the  House,  the  duty  on  structural  steel  had  been 
lowered  like  the  rest.  In  1897  it  had  been  5/lOc.  per  pound ; 
the  House  bill  proposed  3/1  Oc.  per  pound.  In  the  bill  as 
reported  by  the  Senate  committee  the  proposed  duty  was 
4/1  Oc.  per  pound.  But  there  was  also  a  change  of  phrase- 
ology. That  change  is  indicated  by  the  qualifying  clause 
italicized  below,  which  was  inserted  by  the  Senate  com- 
mittee. 

"Beams,  girders,  joists,  angles,  channels,  car-truck  channels,  T  T 
columns  and  posts  or  parts  of  sections  of  columns  and  posts,  deck 
and  bulb  beams,  and  building  forms,  together  with  all  other  struc- 
tural shapes  of  iron  or  steel,  not  assemhled,  or  manufactured,  or 
advanced  beyond  hammering,  rolling,  or  casting/' 

In  the  act  as  passed  the  duty  was  finally  split,  being  fixed  at 
3/lOc.  per  pound  on  structural  steel  valued  up  to  9/lOc.,  and 
4/lOc.  per  pound  valued  at  over  9/lOc.  The  important 
change,  however,  was  not  in  the  figures,  but  in  the  insertion 
of  the  italicized  clause. 


How  Tariffs  Should  Not  Be  Made  165 

The  effect  of  the  italicized  clause  does  not  appear  upon  the 
surface.  No  special  provision  was  made  anywhere  in  the 
act  for  structural  steel  that  is  ''  assembled  or  manufactured 
or  advanced/'  When  the  change  first  came  to  my  attention, 
I  hunted  through  the  measure  to  find  what  was  to  be  the  duty 
on  fabricated  structural  steel.  (Fabricated  is  the  trade  name 
for  structural  steel  that  is  assembled  or  manufactured  or  ad- 
vanced.) Apparently  it  would  have  to  come  under  the  drag- 
net clause,  ''  manufactures  of  iron  and  steel  not  otherwise 
provided  for."  An  inquiry  addressed  to  Treasury  officials 
immediately  after  the  passage  of  the  act  brought  a  somewhat 
hesitating  response,  to  the  effect  that  it  was  supposed  the 
fabricated  steel  would  in  fact  be  dutiable  under  that  clause, 
at  45  per  cent  ad  valorem.  This  was  the  outcome  —  un- 
questionably had  in  view  when  the  qualifying  clause  was  in- 
serted. The  duty  has  not  been  lowered,  but  raised.  The 
general  policy  followed  in  the  act  with  regard  to  iron  and  steel 
manufactures  had  in  this  case  been  reversed. 

During  the  hearings  before  the  House  committee  no  one 
advocated  an  increase  in  the  duty  on  structural  steel.  The 
steel  manufacturers  in  their  general  arguments  before  the 
committee  expressed  themselves,  though  not  with  great  in- 
sistence, against  reductions  of  duty ;  but  they  proposed  no  ad- 
vance. Only  one  statement,  to  be  noted  presently,  was  made 
with  specific  reference  to  structural  steel,  and  that  was  in 
favor  of  a  reduction.  There  is  not  the  slightest  indication 
of  what  happened  in  the  Senate  committee,  or  what  reasons 
were  advanced  in  favor  of  the  substantial  increase  in  duty 
which  was  there  provided  for.^ 

Having  satisfied  myself  by  inquiry  sent  to  the  Treasury 
officials  that  the  duty  had  in  fact  gone  up,  I  endeavored  to 
ascertain  what  the  change  meant.     But  letters  addressed  to 

2  The  Senate  committee's  amendment  was  accepted  in  the  Senate 
itself  without  explanation  or  debate.  Congressional  Record,  April  22, 
1909,  p.  1468. 


166  Free  Trade,  the  Tariff  and  Beciprocity 

various  persons  in  the  trade  brought  vague  and  sometimes 
contradictory  answers.^  One  of  them,  engaged  in  the  manu- 
facture of  fabricated  structural  steel,  stated  that  the  impor- 
tation of  fabricated  shapes  was  unlikely  under  any  circum- 
stances, except  possibly  from  Canada.  The  European  mak- 
ers, he  said,  were  not  used  to  our  engineering  designs,  and 
would  not  be  likely  to  undertake  orders  for  the  United  States. 
But  another,  also  engaged  in  the  manufacture,  said  that  in 
times  past  there  had  been  a  considerable  importation  of  fabri- 
cated steel,  and  that  fabricated  shapes  alone  were  likely  to  be 
imported.  The  customs  statistics  showed  that  in  some  pre- 
vious years  there  had  been  considerable  importations ;  and,  if 
the  second  statement  was  accurate,  the  shapes  imported  were 
in  the  fabricated  class.  Still  another  informant,  a  building 
contractor,  informed  me  that  fabricated  shapes  could  be  made 
anywhere  to  design  and  could  be  carried  to  any  desired  spot, 
whether  N^ew  York,  Texas,  South  Africa,  or  India;  they 
could  be  put  together  without  difficulty  by  the  engineers  on 
the  spot.  And  still  another  stated  that,  although  there  was 
not  in  ordinary  times  much  likelihood  of  importation  of  either 
fabricated  or  unfabricated  shapes  on  our  eastern  seaboard, 
yet  there  was  such  a  possibility  at  occasional  times  of  unusu- 
ally heavy  demand;  and  that  even  under  normal  conditions 
cheap  ocean  rates  made  possible  an  importation  from  Europe 
to  such  places  as  Galveston  and  Puget  Sound.  And  finally 
one  of  my  acquaintances,  nauch  experienced  in  this  sort  of 
business,  stated  his  impression  that  the  rearranged  duty  was 
in  some  way  connected  with  a  "  deal ''  between  the  United 
States  Steel  Corporation  and  the  German  Stahlwerhsverhand, 
by  which  a  division  of  the  market  had  been  arranged.     It  is 

3  I  am  not  at  liberty  to  give  the  names  of  my  correspondents.  The 
same  is  the  case  with  regard  to  most  of  those  with  whom  I  communi- 
cated regarding  the  other  changes  of  duty  mentioned  elsewhere  in  the 
present  article.  But  I  am  able  to  vouch  for  the  good  faith  of  the  per- 
sons who  have  given  information,  and  am  confident  that  their  state- 
ments of  facts  are  accurate. 


Hou^  Tariffs  Should  Not  Be  Made  167 

conceivable  that  the  higher  duty  might  clinch  such  a  compact, 
by  preventing  the  foreigners  once  for  all  from  trespassing  on 
the  Steel  Corporation's  domestic  preserve.  It  is  conceivable 
also  that  here  is  an  explanation  of  the  failure  of  importers  to 
protest  against  the  advance.  The  change,  being  proposed  in 
the  Senate  bill,  which  was  printed  and  widely  distributed, 
could  not  fail  to  have  come  to  the  notice  of  persons  interested ; 
yet  no  opposition  seems  to  have  been  made.  I  was  referred 
by  a  trade  journal  to  a  New  York  dealer  who  was  said  to  be 
a  representative  of  the  German  steel  exporters  and  so  to  be 
in  a  position  to  throw  light  on  the  situation.  But  an  inquiry 
addressed  to  this  person  brought  a  courteous  answer  in  very 
vagTie  terms,  telling  only  of  things  easily  ascertained  by  any 
one  conversant  with  the  Custom  House  statistics,  and  giving 
no  significant  information  whatever. 

This  was  the  end  of  my  inquiries.  Nothing  definite  was 
brought  to  light  concerning  the  origin  and  the  effect  of  this 
increase  of  duty.  I  suspect  that,  though  in  ordinary  times 
there  is  no  likelihood  of  an  importation  of  fabricated  steel, 
there  is  a  chance  of  importation  during  rush  times  and  at 
outlying  districts ;  that  the  competition  is  not  welcome  to  the 
domestic  makers  and  particularly  the  Steel  Corporation ;  and 
that  the  change  in  duty  was  quietly  arranged  in  order  to  pre- 
vent this  sporadic  competition.  A  compact  between  the  Steel 
Corporation  and  its  foreign  potential  competitor  is  entirely 
within  the  bounds  of  possibility.  It  may  be  that  a  little  light 
is  shed  on  the  situation  by  the  single  statement  made  on  this 
subject  before  the  House  committee  and  referred  to  a  mo- 
ment ago.  A  domestic  purchaser  of  structural  steel  thus  pre- 
sented the  case  to  the  House  committee :  "^ 

"  It  is  a  well-known  fact  to  all  in  the  manufacturing  of  finished 
lines  of  the  iron  and  steel  business  that  outside  of  the  United 
States  Steel  Corporation,  and  perhaps  three  or  four  others,  there 
are  no  makers  of  the  class  of  materials  we  use,  excepting  the  item 

*  Hearings  before  the  Committee  on  Ways  and  Means,  II.,  1526. 


168  Free  Trade,  the  Tariff  and  Reciprocity 

of  plates.  With  but  few  exceptions  all  of  the  makers  of  this  class 
of  raw  material  do  fabricating,  i.  e.,  putting  it  together  in  the 
shape  of  bridges,  girders,  columns,  and  what  is  designated  gen- 
erally as  fabricated  work,  although  perhaps  their  aggregate  tonnage 
in  the  fabricating  line  itself  would  not  amount  to  more  than  one- 
third  of  the  total  fabricating  output  of  the  country.  At  present, 
however,  with  the  high  prices  they  are  enabled  to  maintain  on  the 
material  before  it  is  fabricated,  these  makers  are  given  undue  ad- 
vantage over  those  fabricators  who  are  not  makers  of  the  material, 
but  to  whom  they  sell,  and  can  make  much  lower  prices  on  fabri- 
cated work,  and  are  doing  so  to-day  and  virtually  controlling  the 
price  on  this  class  of  work,  the  reason  being  that  the  tariff,  now 
so  excessive,  enables  them  to  make  a  good  profit  on  the  material  as 
first  rolled  into  the  shapes  mentioned  above,  so  that  they  can  afford, 
if  necessary,  virtually  to  throw  in  the  fabricating  for  little  or 
nothing." 

The  next  case  was  of  an  article  much  less  important,  but 
again  a  characteristic  case.  A  change  was  made  in  the  duty 
on  cotton  gloves.  Under  the  Dingley  Act  (of  1897)  these 
had  come  in  at  a  duty  of  45  per  cent  —  the  dragnet  clause 
on  manufactures  of  cotton  n.  o.  p.^  The  House  bill  had  left 
the  duty  unchanged.  The  bill  as  reported  by  the  Senate 
committee  to  the  Senate  still  left  the  duty  unchanged.  But 
in  the  course  of  action  by  the  Senate  Committee  of  the  Whole, 
a  new  clause  was  inserted;  the  cheaper  cotton  gloves  were 
to  be  dutiable  not  at  the  simple  ad  valorem  rate,  but  at  a 
compound  rate,  partly  specific  and  partly  ad  valorem.  In 
the  act  as  passed,  the  Senate  provision  was  substantially  main- 
tained. Gloves  having  a  value  of  $6.00  or  less  a  dozen  pairs, 
were  made  to  pay  a  duty  of  fifty  cents  per  dozen  plus  40  per 
cent  ad  valorem.  If  valued  at  over  $6.00  a  dozen,  the  duty 
remained  ad  valorem  without  any  supplement  of  specific  duty, 
but  the  rate  went  up  to  50  per  cent. 

It  is  obvious  that  a  change  made  through  action  by  the 
Senate  itself  attracts  less  attention  than  one  made  by  its 
Committee  on  Finance.     The  bill  as  prepared  by  the  Com- 

6  "  Not  otherwise  provided  for." 


How  Tariffs  Should  Not  Be  Made  169 

mittee  is  printed,  and  is  sent  to  every  senator  and  indeed  to 
every  one  interested.  Changes  there  proposed  readily  at- 
tract the  attention  of  the  persons  concerned.  But  changes 
made  by  the  Senate  itself  are  carried  out  in  the  wearisome 
routine  of  the  amendments,  with  little  attention  and  usually 
with  no  debate.  Once  embodied  in  the  bill  as  passed  by  the 
Senate,  they  can  be  changed  only  in  Conference  Committee 
—  always  a  difficult  task. 

On  the  surface  there  is  nothing  to  show  what  will  be  the 
effect  of  a  change  of  this  sort.  It  may  or  may  not  be  of 
substantial  importance,  the  effect  depending  on  the  character 
and  value  of  the  goods  used.  On  cheap  gloves,  the  insertion 
of  the  additional  specific  duty  would  bring  a  great  advance. 
Thus  on  gloves  valued  at  one  dollar  a  dozen  the  old  rate  was 
45  per  cent,  that  is,  forty-five  cents;  the  new  rate  was  fifty 
cents  plus  40  per  cent,  or  ninety  cents  in  all.  The  duty  was 
doubled,  and  became  90  per  cent  on  the  value.  On  dearer 
gloves,  the  specific  duty  would  be  proportionally  less  weighty. 

In  fact,  it  was  the  cheaper  grade  of  gloves  which  proved 
to  be  affected.  Inquiry  among  persons  conversant  with  the 
trade  showed  that  the  cheaper  gloves  worth  at  wholesale  one 
dollar  a  dozen  or  thereabouts,  were  imported  largely  from 
Germany,  and  used  for  the  most  part  by  policemen,  marines, 
and  militia,  for  dress  oc<!asions ;  bought  principally  by  public 
officials.  The  duty  was  inserted  in  the  Senate  through  the 
activity  of  a  person  well  knovni  in  the  trade.  He  had  got 
the  ear  of  a  New  England  senator,  a  member  of  the  Finance 
Committee,  who  had  secured  for  his  protege  the  increase  of 
duty.     An  importer  wrote  me  as  follows: 

"  For  years  we  have  bought  men's  and  boys'  cheap  cotton  gloves 
wholesale  from  $1,121/2  to  $1.25,  from  Germany,  but  on  account  of 
the  extra  special  duty  of  50c.  per  dozen,  it  has  been  absolutely  im- 
possible to  continue  buying  these  goods  abroad.  .  .  .  We  have  been 

obliged  to  place  our  orders  with  Mr.  .     He  is  a  member  of  the 

firm  of  ,  who  are  making  a  very  cheap  domestic  glove  ar^d 


lYO  Free  Trade,  the  Tariff  and  Reciprocity 

reaping  the  direct  benefits  of  the  tariff  which  Mr.  was  in- 
strumental in  placing  on  these  goods.  He  was  in  our  store  last 
Saturday,  soliciting  more  business  and  states  that  he  has  received 
some  very  large  contracts  from  the  U.  S.  Army.  One  of  his  orders 
for  this  spring  was  for  over  200,000  pairs.  So  that  not  only  the 
public  but  the  U.  S.  government  is  contributing  to  his  support 
through  the  new  tariff." 

One  of  the  details  deserves  notice.  In  the  bill  as  passed 
by  the  Senate  and  as  sent  to  the  Conference  Committee,  the 
new  rates  had  been  made  applicable  to  "  cotton  gloves  "  in 
general.  But  private  protests  to  the  Senator  in  charge  did 
secure  a  modification.  The  language  was  amended,  in  con- 
ference, by  the  insertion  of  the  words  "men's  and  boys'.'' 
Hence  gloves  for  women  in  the  end  came  in  at  the  old  rate 
of  45  per  cent.  The  Senator  was  able  to  allow  this  concession 
since  it  did  not  affect  the  plans  of  his  protege. 

'Now  there  may  be  good  grounds  of  public  policy  for  mak- 
ing sure  that  men's  white  cotton  gloves  are  made  at  home  and 
not  imported.  It  may  be  thought  humiliating  for  this  great 
country  that  our  soldiers  should  wear  on  dress  occasions  cheap 
cotton  gloves  made  by  cheap  German  labor;  it  may  even  be 
thought  that  their  martial  spirit  would  be  enfeebled.  For 
myself,  I  am  able  to  face  the  possibility  without  a  shock  to 
my  feelings  of  patriotism.  But  it  seems  tolerably  clear  that 
the  moving  force  in  bringing  about  the  new  duty  was  not  the 
semi-military  consideration,  but  pressure  from  the  interested 

Mr.  .     If  changes  in  duty  such  as  this  are  to  be  made, 

should  they  not  be  deliberately  reported  and  publicly  con- 
sidered ?  ^ 

The  third  case  is  that  of  nippers  and  pliers.  These  also 
had  formerly  been  subject  to  a  dragnet  duty,  as  manufac- 
tures of  iron  and  steel,  at  45  per  cent.     The  bill,  as  it  came 

B  The  amendment  for  the  increase  of  this  duty  was  offered  at  an  even- 
ing session,  as  coming  from  the  Finance  Committee,  and  was  accepted 
after  a  very  few  words  of  debate.  Congressional  Record,  June  7,  1909, 
pp.  2914-2915. 


How  Tariffs  Should  Not  Be  Made  171 

from  the  House  Committee  on  Ways  and  Means  and  as  passed 
by  the  House,  made  no  change.  As  submitted  to  the  Senate 
by  the  Senate  Finance  Committee,  it  still  proposed  no  change. 
But  in  the  course  of  action  by  the  Senate  itself  a  consider- 
able rearrangement  was  made.  Again  there  was  substituted 
a  compound  duty,  partly  specific  and  partly  ad  valorem, 
l^ippers  and  pliers  were  to  be  subject  to  a  duty  of  ten  cents 
per  pound  plus  40  per  cent.  In  the  act  as  passed  the  Senate 
amendment  was  virtually  incorporated :  the  duty  became  eight 
cents  per  pound  plus  40  per  cent. 

Once  more  I  made  inquiries  of  persons  in  the  trade,  and 
was  informed  that  the  duty  was  put  in  at  the  request  of  a 
Utica  manufacturing  concern.  That  concern  had  presented 
a  statement  to  the  House  committee,  which  was  duly  printed 
in  the  Hearings;  '^  but  its  request  for  an  increase  of  duty  was 
not  granted  in  the  House  bill.  In  the  Senate  a  well-known 
official,  not  a  senator,  but  high  in  the  administrative  hier- 
archy, stood  sponsor  for  the  change.  The  persons  who  pro- 
tested at  the  last  minute  against  the  increase  of  duty  were 
informed  that  it  really  was  of  little  consequence  what  they 
might  say  or  present.  So  long  as  this  statesman  was  insist- 
ent in  urging  the  increased  duty,  it  would  remain.  And  re- 
main it  did.  I  was  shown  copies  of  some  typewritten  state- 
ments presented  by  the  Utica  concern  to  the  Senate  Finance 
Committee.  They  were -obviously  of  the  sort  that  are  pre- 
pared ^ro  forw.a;  a  medley  of  crude  figures  about  cost  of 
production,  exaggerated  statements  about  the  dreadful  low 
wages  in  Germany,  and  the  like,  which  would  not  stand  a 
moment's  searching  analysis ;  such  stuff  as  is  familiar  in  state- 
ments made  before  tariff  committees.  All  this  obviously  was, 
to  repeat,  pro  forma.  The  moving  impulse  towards  the 
higher  duty  was  the  influence  of  the  friendly  statesman,  and 
figures  and  arguments  for  the  duty  had  as  little  real  influence 
as  figures  and  arguments  against. 

^  Hearings,  III,  2782. 


172  Free  Trade,  the  Tariff  and  Reciprocity 

Now,  as  to  the  effect.  Like  all  compound  duties  (partly 
specific  and  partly  ad  valorem),  it  bore  most  heavily  on  the 
cheaper  classes  of  goods.  On  small  nippers  and  pliers,  light 
in  weight,  the  specific  duty  of  eight  cents  per  pound  was  in- 
significant ;  these  continued  to  be  imported.  The  larger  sizes, 
used  for  wire  fencing  and  the  like,  were  subject  to  a  much 
higher  duty,  and  the  importation  of  these  declined.  The 
domestic  manufacturers  took  a  larger  proportion  of  the  busi- 
ness. My  chief  informant  stated,  however,  that  the  Utica 
concern,  originally  the  party  mainly  interested,  soon  found 
competition  from  other  manufacturers,  and  that  the  business 
was  distributed  among  various  domestic  producers.^  He 
wrote  also: 

"  The  Utica  concern  is  very  progressive  and  aggressive  and  I  be- 
lieve that  even  if  no  change  had  been  made  in  the  schedule  they 
would  nevertheless  have  continued  to  get  more  and  more  of  the 
trade  in  pliers  and  nippers,  thereby  reducing  the  sale  of  imported 
goods.  .  .  .  The  increase  in  the  duty  has  of  course  helped  them 
very  materially,  but  my  opinion  is  that  in  the  long  run  they  would 
have  accomplished  the  same  purpose,  although  possibly  with  less 
profit." 

Somewhat  different  was  another  case,  that  of  razors.  Here 
there  was  public  presentation  of  petitions  to  the  House  com- 
mittee; and  some  advances  of  duty  were  proposed  in  the 
House  bill.  In  the  Senate  a  still  further  increase  of  duty 
was  proposed,  and  the  Senate  rates  in  the  main  were  enacted. 
The  course  of  events  is  indicated  in  the  following  tabulated 
statement,  which  also  indicates  how  complex  was  the  system 
of  rates.  As  in  many  other  of  the  schedules  that  reached 
very  high  rates,  there  was  a  double  complication.  Goods 
were  classed  according  to  value,  the  duty  shifting  abruptly 

8  In  the  statement  submitted  by  the  Utica  Company  to  the  House 
Committee,  it  is  said  {Hearings,  2782)  :  "  We  are  the  only  plant  in  the 
country  making  no  other  product  except  nippers  and  pliers."  A  list  is 
given  of  other  firms  "  who  make  pliers  as  a  side  line." 


Bow  Tariffs  Should  Not  Be  Made 


173 


as  a  given  point  of  value  (say  $1.50  a  dozen  for  razors)  was 
reached.  Further,  the  duty  v^^as  compound  —  so  much  per 
dozen  and  in  addition  an  ad  valorem  rate.     It  will  be  ob- 


DUTIES  ON  RAZORS  1897-1909 


Act  of   1897 


Value    up    to   $1.50 

doz. 

duty  50c.  dozen 

plus  15%. 


Value  $1.50  @  $3.00 

duty  $1.00  dozen 

plus    15%. 


Value  over  $3.00 
duty   $1.75   dozen 
"plus   20%. 


Duties  proposed  in  1909 


House  bill 


Value    up    to    $1.50 

doz. 

duty  50c.  dozen 

plus    30%. 


"alue  $1.50  @  $3.00 

duty   $1.00   dozen 

plus    30%. 


Value   over   $3.00 
duty  $1.75    dozen 
plus   30%. 


Senate  bill 

Value    under    $1.00 

doz. 

duty   45%. 


Value  $1.00  @  $1.50 

doz. 

duty  6c.  each 

plus   40%. 


V^alue  $1.50  @  $2.00 

doz. 

duty  10c.    each 

plus   40%. 


Value   over   $2.00 
duty   12c.    each 
plus    50%. 


Act   of   1909 


Value    under    $1.00 

doz. 

duty  35%. 


Value  $1.00  @  $1.50 

doz. 

duty  5c.  each 

plus   35%. 


Value  $1.50  @  $2.00 

doz. 

duty   10c.   each 

plus   35%. 


Value  $2.00  @  $3.00 

doz. 

duty   12c.   each 

plus    35%. 


$3.00 


Value     over 
doz. 

duty   15c.   ea^h 
plus   35%. 


served  that  the  Senate  changed  the  House  figures  in  such 
manner  as  to  disguise  somewhat  the  increase  of  duty.  The 
specific  rate  on  the  cheapest  razors  had  been  in  the  House 
bill  50c.  a  dozen.  The  Senate  made  it  6c.  each,  or  72c.  a 
dozen.  On  the  medium  grade  razors  the  House  specific 
rate  had  been  $1.00  a  dozen;  the  Senate  made  it  10c.  each, 
or  $1.20  a  dozen.  On  the  highest  class  of  razors  the  House 
.specific  rate  had  been  $1.75  a  dozen;  the  act  finally  made  it 
15c.  each,  or  $1.80  a  dozen.  In  the  act  as  passed  the  Senate 
rates  were  in  the  main  retained,  but  with  the  ad  valorem  duty 
fixed  in  all  cases  at  35  per  cent.  The  reader  will  see  for  him- 
self how  the  specific  duties  were  rearranged  in  the  various 
stages  of  the  bill.  The  net  outcome  was  a  very  substantial 
increase. 

In  this  case  there  was  not  a  little  discussion.     As  already 


174  Free  Trade,  the  Tariff  and  Reciprocity 

mentioned,  the  request  for  a  higher  duty  was  presented  to  the 
House  committee  and  duly  recorded.^  In  the  Senate  there 
was  an  active  debate.  It  was  to  be  expected,  and  gives  no 
occasion  for  special  criticism,  that  those  who  advocated  an 
increase  should  put  the  case  on  the  unqualified  protectionist 
grounds.  But  there  were  some  curious  misstatements  and 
misconceptions.  The  reader  who  searches  in  the  columns  of 
the  Congressional  Record  for  items  regarding  the  economic 
development  of  the  United  States  will  find  here  accounts  of 
astounding  industrial  reverses.  ^^  It  would  appear  that  a 
decade  ago  there  were  sixty  or  seventy  razor  factories  in  the 
United  States,  and  that  this  flourishing  industry  had  been 
virtually  wiped  out  by  foreign  competition;  the  number  of 
factories  had  been  reduced  to  five!  But  I  learn  from  pri- 
vate sources  that  the  cataclysm  was  not  really  so  violent. 
Some  of  the  domestic  manufacturers,  in  conversation  with  a 
senator  active  in  the  debate  on  this  subject  had  informed  him 
that  a  decade  ago  there  were  ^'  six  or  seven  "  razor  factories 
in  the  United  States,  and  that  the  number  had  fallen  to  five ! 
The  distinguished  senator  had  understood  them  to  say  '^  sixty- 
seven,"  and  had  so  stated  on  the  floor  of  the  Senate. ^^  Hav- 
ing made  the  statement  in  public,  he  did  not  wish  to  modify 
it  in  so  sweeping  a  way  as  would  have  been  necessary  to  re- 
duce sixty-seven  to  six  or  seven.  Accordingly  the  statement 
remained,  was  repeated  by  other  senators,  and  is  permanently 
recorded  in  the  files  of  the  Congressional  Record.  It  may 
happen  that  in  coming  centuries  some  research  student  of 
economic  history  will  turn  to  these  pages  as  "  original  " 
sources  of  information  and  will  find  here  unmistakable  con- 
temporary testimony  of  the  extraordinary  mutations  of  in- 
dustry in  the  United  States  at  the  beginning  of  the  twentieth 
century. 

9  Hea/rings,  2161. 

10  The  debate  is  recorded  in  the  Congressional  Record,  Senate  Pro- 
ceedings, May  15,  17,  18,  1909. 

11  Congressional  Record,  2165,  2180,  2221. 


How  Tariffs  Should  Not  Be  Made  175 

In  its  strictly  economic  aspect,  the  razor  situation  is  in 
many  respects  curious.  Some  sorts  of  razors  we  export  — 
the  world-known  safeties.  It  is  obvious  that,  in  order  to  ex- 
port, we  must  be  able  to  produce  them  more  cheaply  than  can 
foreigners.  Other  sorts  of  razors,  especially  the  finer  grades 
of  "  old-style  "  razors,  we  import  in  the  face  of  high  duties. 
Evidently  the  old-style  razors  are  produced  more  cheaply  in 
foreign  countries.  Most  of  them  had  come  from  England 
in  earlier  days;  but  of  late  England  has  been  displaced  by 
Germany.  It  was  the  dreadful  Germans  and  their  deadly 
cheap  wages  that  were  chiefly  referred  to  in  the  Senate  de- 
bates. 

These  cross-currents  in  the  importations  and  exportationg 
of  razors  are  in  line  with  similar  cross-currents  as  to  other 
sorts  of  hardware.  In  general,  we  export  rather  than  import 
finished  iron  and  steel  goods.  We  export  builders'  hardware 
(hinges,  locks,  door  knobs),  machinery  and  machine  tools, 
locomotives,  agricultural  implements,  and  the  like.  On  the 
other  hand,  we  import  many  pocket-knives  (though  in  recent 
years  more  and  more  pocket-knives,  especially  of  medium 
grades,  have  been  manufactured  in  this  country),  and  a  mis- 
cellaneous assortment  of  anchors,  chains,  tools,  machines. 
The  explanation  of  these  apparently  anomalous  juxtaposi- 
tions of  imports  and  exports,  is  that  things  made  by  machin- 
ery are  likely  to  be  made  in  this  country  and  even  to  be  ex- 
ported, whereas  those  made  by  artisan  hand  labor  are  likely 
to  be  imported.  When  it  comes  to  turning  out  by  machinery, 
on  a  large  scale,  great  quantities  of  goods  of  a  standard  pat- 
tern, we  need  not  fear  foreign  rivals.  For  this  sort  of  thing, 
we  have,  in  the  language  of  the  economists,  a  comparative  ad- 
vantage. ^Notwithstanding  higher  wages,  Ave  can  turn  out  the 
product  as  cheaply  as  the  European  rival,  even  more  cheaply. 
But  when  it  comes  to  articles  made  by  hand  labor,  the  Euro- 
pean who  gets  his  labor  at  a  cheaper  rate  can  undersell  us. 
This  sort  of  reasoning  had  seemed  applicable  in  explanation 


176  Free  Trade,  the  Tariff  and  Reciprocity 

of  the  continued  importation  of  old-style  razors.  I  still  be- 
lieve that  in  general  the  explanation  is  a  good  one.  It  ac- 
counts in  the  main  for  these  peculiarities  in  our  international 
trade ;  it  explains  why  some  articles  are  imported,  and  others, 
apparently  like  them,  are  not  imported,  and  even  are  ex- 
ported. But  on  inquiry  of  persons  engaged  both  in  the  im- 
portation and  in  the  manufacture  of  razors,  I  find  that  the 
facts  do  not  fit  into  the  reasoning,  so  far  as  this  particular 
article  is  concerned.  It  appears  that  in  former  times  ra- 
zors came  chiefly  from  England.  There  they  were  made  by 
skilled  artisans,  and  in  the  main  by  hand  labor.  The  Shef- 
field grinder  put  the  edge  on  each  individual  blade  by  hand, 
on  varying  sizes  of  small  stones.  But  of  late  razors  have 
come  more  and  more  from  Germany,  and  my  informant 
writes  as  follows: 

In  this  particular  industry  the  Germans  have  decidedly  taken  a 
leaf  out  of  our  book.  While  we  have  been  struggling  along,  trying 
to  make  razors  under  the  old  English  methods  (with  a  few  —  but 
very  few  —  modern  appliances),  they  have  gone  ahead  and  com- 
paratively revolutionized  the  methods;  introduced  new  ways  for 
forging  the  blades,  and  above  all  things,  invented  and  put  into 
satisfactory  operation  grinding  machines  which  have  enabled  them 
not  only  to  manufacture  razors  at  a  very  low  cost  of  production, 
but  to  produce  a  quality  and  uniformity  of  goods  with  which  we 
simply  cannot  compete. 

It  would  seem  that  the  Americans  for  once  have  been  back- 
ward. Apparently  what  the  domestic  producers  of  razors 
really  need  is  not  higher  duties  but  greater  enterprise  and 
skill.  A  demand  for  extreme  duties  is  always  suspicious. 
In  this  case,  as  in  so  many  others  on  our  present  tariff  list, 
the  combination  of  specific  and  ad  valorem  rates  conceals, 
and  at  the  same  time  achieves,  duties  of  from  75  to  100  per 
cent.  Where  the  domestic  producers  ask  for  so  great  a 
handicap  on  their  foreign  competitors,  the  presumption  is 


How  Tariffs  Should  Not  Be  Made  177 

against  them.  Either  they  are  trying  to  do  work  for  which 
our  resources  and  our  ways  are  not  fitted,  or  else  (as  seems 
here  to  be  the  case)  they  are  not  abreast  of  progress  in  their 
own  industry. 

Eeturning  now  to  such  cases  as  were  first  considered  — • 
structural  steel,  cotton  gloves,  nippers  and  pliers  —  we  have 
two  questions  to  consider.  The  first  relates  to  the  expe- 
diency of  the  advances  in  duty;  the  second  to  the  methods 
by  which  the  advances  were  brought  about. 

On  the  first  question,  the  answer  must  turn  chiefly  on 
one's  opinions  regarding  the  advantages  or  disadvantages  of 
protective  duties.  The  convinced  protectionist  will  believe 
that  the  domestic  production  of  these  several  articles  is  de- 
sirable in  itself.  Whatever  duties  are  necessary  in  order  to 
"  acquire  '^  a  new  industry  are  justified. 

And  on  the  question  of  legislative  methods  also,  one's  atti- 
tude toward  the  fundamental  question  affects  the  answer. 
The  protectionist  will  be  likely  to  say:  this  is  simply  the 
way  of  the  world,  or  at  least  the  way  of  the  United  States. 
Our  legislative  methods  are  in  every  direction  unsystematic 
and  irresponsible.  Tariff  bills  are  inevitably  dealt  with  as 
are  river  and  harbor  bills  and  general  appropriation  bills. 
The  only  way  in  which  a  desired  result  can  be  brought  about 
has  been  through  the  influence  of  individual  legislators  and 
in  the  traditional  ways.  We  cannot  escape  log  rolling,  pri- 
vate interviews  with  influential  politicians,  settlement  of  de- 
tails in  quiet  conamittee  meetings. 

The  opponent  of  protection,  on  the  other  hand,  will  smell 
corruption.  Probably  he  is  mistaken  in  this  score.  The 
legislators  have  a  pecuniary  stake  in  the  rarest  of  cases. 
The  only  sort  of  "  corruption  "  that  plays  any  considerable 
part  is  that  of  contributions  to  party  chests ;  and  the  persons 
who  make  such  contributions,  as  well  as  those  who  receive 


178  Free  Trade,  the  Tariff  and  Reciprocity 

them,  may  maintain  in  good  faith  that  the  funds  are  used  in 
the  promotion  of  a  policy  believed  to  be  sound  not  only  by 
themselves  but  by  the  majority  of  the  voters. 

None  the  less,  and  quite  apart  from  any  charges  of  cor- 
ruption, there  seems  now  to  be  a  conviction  that  our  legis- 
lative methods  should  be  changed  so  far  as  the  tariff  is  con- 
cerned. Whatever  may  have  been  the  methods  inevitable 
in  the  past,  a  more  open  and  deliberate  procedure  should  be 
followed  in  the  future.  It  may  be  a  question  how  far  the 
reaction  against  protectionism  which  seemed  to  show  itself 
in  the  elections  which  were  held  after  the  passage  of  the 
tariff  act  of  1909,  stands  for  a  permanent  change  in  the 
public's  attitude.  Very  possibly  it  is  only  a  blind  revolt, 
holding  the  party  in  power  responsible  for  high  prices,  de- 
pression in  business,  and  all  other  things  unwelcome.  But 
there  is  a  general  belief  that  the  country  should  know  more 
about  the  details  of  tariff  legislation,  and  should  know  about 
them  in  advance.  If  increases  of  duty  are  to  be  made,  let 
them  be  made  openly,  and  let  the  reasons  be  stated.  If  a 
domestic  producer  is  to  be  helped  by  a  handicap  on  foreign 
competitors,  let  it  be  made  clear  from  the  start  just  what 
is  to  be  done  for  him  and  just  what  a  given  tariff  provision 
means.     Let  there  be  no  more  jokers. 

Further,  there  is  a  strong  conviction  that  inquiry  should 
be  made  and  publicity  should  be  secured  through  some 
agency  other  than  the  House  and  Senate  committees.  These 
have  an  extraordinary  multiplicity  of  details  to  consider. 
They  are  so  wearied  by  prolonged  and  repeated  hearings, 
crowded  into  a  few  weeks,  that  it  is  impossible  for  them  to 
give  serious  attention  to  all  the  matters  presented.  It  is 
not  to  be  wondered  at  that  the  Senate  committee  refused  to 
have  public  sessions.  The  House  committee,  which  had  much 
more  time  for  preparation,  was  almost  swamped  by  its  hear- 
ings. The  Senate  committee,  which  of  necessity  had  less 
time,  naturally  felt  that  it  would  be  swamped  once  for  all. 


How  Tariffs  Should  Not  Be  Made  179 

But  this  situation,  perhaps  making  star  chamber  procedure 
inevitable,  gives  opportunity  for  covert  changes,  for  concealed 
pressure  from  private  interests,  for  irresponsible  legislation. 
Hence  the  demand  for  some  permanent  body,  equipped  to 
make  investigation,  and  to  make  a  judicial  report  on  the  sig- 
nificance of  proposed  changes.  Such  cases  as  have  been  con- 
sidered in  the  preceding  pages  show  how  tariffs  should  not 
be  made. 


THE  PEOPOSAL  FOE  A  TAEIFF  COMMISSIOJST  ^ 

The  proposal  for  the  establishment  of  a  permanent  tariff 
board  or  commission  is  regarded  in  many  quarters  as  show- 
ing the  way  to  a  solution  of  the  tariff  question.  There  is 
much  to  be  said  for  it.  But  there  are  serious  difficulties  and 
limitations,  and  above  all  troublesome  questions  about  the 
character  and  make-up  of  the  proposed  board,  and  the  course 
of  action  to  be  followed  in  improving  our  general  political 
organization. 

The  first  thing  that  needs  to  be  borne  in  mind  is  that  no 
tariff  commission  can  settle  policies.  'No  administrative 
body  of  any  kind  can  decide  for  the  country  whether  it  is  to 
adopt  protection  or  free  trade,  to  apply  more  of  protection 
or  less,  to  enact  a  system  of  purely  fiscal  duties  or  "  a  tariff 
for  revenue  with  incidental  protection."  Such  questions  of 
principle  must  be  settled  by  Congress  —  that  is,  by  the  voters. 

It  is  further  to  be  borne  in  mind  that  the  advocacy  of  a 
"  scientific  "  settlement  of  the  tariff  does  not  carry  us  far. 
There  are  no  scientific  laws  applicable  to  economic  problems 
in  the  same  way  as  the  laws  of  physics  are  applicable  to  engi- 

1  North  American  Review,  February,  1916. —  This  article  is  reprinted 
with  no  change  of  substance,  and  must  be  read  with  regard  to  the  time 
of  publication.  Later  in  the  year  1916  (October),  Congress  passed  the 
act  establishing  the  United  States  TariflF  Commission.  In  the  deter- 
mination of  its  fimctions,  the  second  of  the  plans  described  in  the  text 
was  followed:  the  Commission  was  made  an  independent  board,  with 
powers  of  investigation  only  and  with  no  administrative  functions.  My 
experience  on  the  Commission  has  not  led  me  to  modify  the  opinions 
expressed  in  this  article.  Useful  though  the  independent  investigating 
Commission  is  for  research  and  report,  there  is  occasion  for  reorganiza- 
tion and  consolidation  of  the  various  boards  and  sub-departments  now 
concerned  with  customs  matters. 

180 

C^  ill     fj.^1         fi/i   )     .    liH^  ^  44UaLL-      ^   ^  ' 


The  Proposal  for  a  Tariff  Commission  181 

neering  problems.  If  we  extend  the  term  "  s<jience  "  to  eco- 
nomics, we  must  remember  that  it  can  refer  in  this  subject 
only  to  certain  generalizations  and  to  a  body  of  useful  in- 
formation, not  to  a  system  of  clear-cut  principles  or  laws. 
Some  of  the  economic  generalizations  are  well  established; 
others  are  of  a  very  tentative  and  provisional  sort.  I  believe 
some  things  are  established  concerning  the  working  of  pro- 
tective duties;  but  there  is  no  such  a  consensus  of  opinion 
on  the  subject  as  to  give  us  a  body  of  principles  applicable  at 
once  in  legislation,  or  such  as  to  enable  us  to  decide  at  once  on 
a  method  of  procedure.  For  example,  it  is  often  maintained, 
not  only  in  the  United  States,  but  in  other  countries  as  well, 
that  the  "  scientific ''  solution  of  the  tariff  question  is  that  of 
the  equalization  of  competition  or  the  equalization  of  costs 
of  production.  The  underlying  idea  is  that  such  duties  shall 
be  imposed  as  will  equalize  the  difference  between  cost  of 
production  within  a  country  and  a  lower  cost  of  production  in 
foreign  countries.  Now,  I  do  not  myself  believe  that  this 
is  a  scientific  or  a  commendable  basis  for  the  levying  of  pro- 
tective duties.  Consistently  carried  out,  it  amounts  to  say- 
ing that  all  industries  are  equally  worth  having;  that  when 
differences  in  cost  are  great,  duties  should  be  correspondingly 
high ;  that  every  industry,  no  matter  how  ill  adapted  to  a 
country's  natural  resources  or  its  industrial  qualities,  should 
have  the  equalizing  protection;  that  we  should  never  stop  to 
consider  what  are  the  directions  in  which  we  can  apply  a 
country's  labor  and  capital  to  best  advantage.  The  equaliz- 
ing proposal  is  perhaps  a  convenient  and  workable  way  of 
dealing  with  a  protective  system  which  is  established  and  to 
which  important  industries  have  adjusted  themselves.  Quite 
conceivably  Congress  might  adopt  such  a  principle,  and  re- 
quest a  tariff  commission  to  frame  a  bill  based  upon  it.  But 
it  cannot,  in  my  judgment,  be  said  to  rest  upon  any  estab- 
lished economic  principle,  or  to  be  scientific  in  any  accurate 
sense  of  the  term. 


182  Free  Trade,  the  Tariff  and  Reciprocity 

One  other  preliminary  remark  may  be  made.  Much  is 
said  at  the  present  juncture  about  the  importance  of  a  tariff 
commission  in  order  to  put  the  country  in  a  state  of  indus- 
trial "  preparedness."  The  war,  it  is  said,  must  necessarily 
come  to  a  close  before  very  long,  and  then  new  conditions  of 
international  competition  will  have  to  be  faced.  Should  we 
not  have  a  careful  and  elaborate  inquiry  as  to  the  best  way 
of  facing  the  coming  situation  ?  On  this  matter  also  I  doubt 
whether  a  tariff  commission  can  help  us  much.  No  one,  not 
the  ablest  set  of  men,  even  though  provided  with  any  amount 
of  money  for  engaging  '^  experts,"  can  possibly  learn  what 
sort  of  industrial  conditions  will  have  to  be  faced  when  the 
war  comes  to  an  end.  We  could  not  go  to  European  countries 
for  the  purpose  of  investigation,  or  send  agents  to  European 
countries,  for  the  obvious  reason  that  the  respective  govern- 
ments would  not  allow  us  to  peer  into  their  affairs.  Even  if 
we  could  send  agents  and  get  all  possible  information  con- 
cerning existing  conditions,  no  prediction  could  be  made  con- 
cerning the  course  of  development  after  peace.  And  if  all 
these  difficulties  could  be  overcome,  there  would  remain  yet 
a  further  difficulty  in  the  way  of  getting  "  prepared."  The 
elaboration  of  a  tariff  bill  at  the  hands  of  a  commission  is 
necessarily  a  slow  process.  The  experience  of  the  defunct 
Tariff  Board  of  1910-12  indicates  what  must  necessar- 
ily happen.  That  Commission  was  composed  of  able  men, 
and  it  had  large  resources.  It  conducted  excellent  investi- 
gations and  made  valuable  contributions  to  the  understand- 
ing of  some  phases  of  the  tariff.  But  it  needed  a  couple  of 
years  to  carry  on  its  investigations,  and  even  then  was  com- 
pelled to  send  in  reports  before  the  investigations  were  com- 
pleted, because  of  political  pressure  to  induce  it  to  make 
some  sort  of  early  showing.  If  a  tariff  commission  had  the 
task  of  preparing  a  complete  bill  on  all  the  complicated 
schedules,  involving  the  vast  range  of  our  industries,  it  would 


The  Proposal  for  a  Tariff  Coimnission  183 

be  quite  unable  to  report  or  recommend  anything  until  a 
considerable  period  had  elapsed.  No;  the  commission  pro- 
ject must  be  judged,  not  with  reference  to  any  inmaediate 
emergency,  real  or  supposed,  but  with  reference  to  its  value 
as  a  permanent  policy. 

Incidentally,  I  venture  to  express  my  opinion  that  therei 
is  exaggeration  in  the  talk  about  necessity  of  preparedness  \ 
for  the  coming  conditions  of  peace.  No  doubt  there  will  be  \ 
a  jar,  a  shock,  when  the  war  comes  to  a  close.  But  it  is  i 
not  likely  to  be  at  all  so  great  as  that  which  came  at  the  j 
outbreak  of  the  war.  Then  there  was  a  crash  from  a  clear 
sky.  Now,  everybody  knows  that  the  change  is  certain  to 
come,  and  everybody  is  more  or  less  on  the  lookout  for  it. 
It  is  in  the  highest  degree  improbable  that  the  end  of  the  war 
will  cause  an  industrial  crisis  in  any  country  at  all  compar- 
able to  that  of  the  midsummer  of  1914  ;  and  least  of  all  in  the 
United  States.  No  doubt,  there  will  be  a  period  of  readjust- 
ment, of  uncertainty,  very  possibly  of  depression;  then  a 
gradual  settling  dowm  to  the  new  conditions.  And  as  this 
gradual  settlement  takes  place,  it  is  by  no  means  clear  that 
any  far-reaching  change  in  international  trade  will  be  ex- 
perienced. Certainly,  so  far  as  imports  of  manufactured 
articles  into  the  United  States  are  concerned,  there  is  no 
probability  that  they  will  be  greatly  swelled.  European  in- 
dustry is  much  more  likely  to  be  weakened  than  to  be 
strengthened  by  the  fearful  strain  of  the  war,  and  for  some 
years  in  the  future  is  less  likely  to  be  a  formidable  compet- 
itor than  before.  Undoubtedly,  there  will  be  varying  con- 
ditions in  different  industries;  but  I  see  no  indications  of  a 
portentous  outpouring  of  exports.  Whether  the  great  strug- 
gle will  eventually  have  far-reaching  consequences  upon  the 
commercial  relations  between  nations,  it  would  be  hazardous 
now  to  predict.  But  any  long  drawn  out  and  slowly  de- 
veloping consequences  of  this  kind  can  have  no  bearing  upon 


184  Free  Ti-ade,  the  Tariff  and  Reciprocity 

I  the  immediate  tariff  problem  confronting  the  United  States. 
ITo  repeat,  the  tariff  commission  project  should  be  considered 
Vithout  regard  to  the  war  contingencies. 

Nevertheless,  there  is  much  to  be  said  in  favor  of  a  per- 
manent tariff  commission  or  organization  of  some  sort.  Even 
though  it  could  not  solve  the  tariff  question  on  a  "  scientific  " 
basis,  or  take  the  tariff  out  of  politics,  or  evolve  a  scientific 
tariff,  or  put  the  country  in  a  state  of  preparedness,  it  could 
render  important  services. 

The  main  thing  on  which  a  body  of  this  kind  could  be 

helpful  is  in  the  more  careful  preparation  of  tariff  legisla- 

'tion.     It  could  aid  in  the  accurate,  honest,  and  consistent 

i  carrying  out  of  whatever  policy  CongTess  —  that  is,  the  party 

Mo  which  the  voters  had  given  control  of  legislation  —  might 

wish  to  carry  out. 

J  Every  one  knows  that  the  traditional  ways  of  framing  tar- 
j'jif  legislation  have  been  in  the  highest  degTee  haphazard. 
■'^  There  has  been  rough  and  ready  settlement  by  the  Congres- 
sional committees,  influenced  in  a  general  way  by  the  Ad- 
ministration in  office.  The  House  Ways  and  Means  Com- 
mittee has  framed  its  bill ;  the  House  of  Representatives  it- 
self has  then  amended  its  committee  bill.  The  Senate  Fi- 
nance Committee  has  made  more  or  less  hash  of  the  House 
bill,  and  the  Senate  itself  has  made  more  or  less  hash  of  its 
own  committee  bill.  Then  the  Conference  Committee  of  the 
two  Houses  gets  together.  That  Conference  Committee,  al- 
ways under  pressure  because  of  short  time,  holding  its  ses- 
sions in  secret,  dominated  by  a  few  individuals,  influenced 
more  or  less  by  advice  or  pressure  from  the  White  House,  has 
evolved  the  final  tariff  bill.  And,  if  there  was  to  be  any  tar- 
iff legislation  whatever,  this  Conference  Committee  bill  had 
to  be  passed  once  for  all  in  the  shape  in  which  it  came  from 
the  committee. 

All  of  the  bodies  concerned  —  the  House  Committee  of 
\Ways  and  Means,  the  Senate  Finance  Committee,  the  Con- 


The  Proposal  for  a  Tariff  Commission  185 

ference  Committee,  the  President  and  tlie  Secretary  of  the  / 
Treasury  and  the  officials  of  the  Treasury  Department  —  \ 
have  had  a  flood  of  statements  and  representations  and  sta-  ] 
tistics  poured  in  on  them.  They  have  been  veritably 
swamped  by  the  mass  of  interested  testimony.  The  legis- 
lative committees  have  had  clerks  or  experts,  selected  hur- 
riedly and  put  to  work  hurriedly  —  often  selected  because 
some  one  had  a  pull  and  wanted  to  get  a  job.  Even  the  most 
conscientious  chairmen  and  members  of  the  committee  could 
not  possibly  make  themselves  informed  abuut  the  meaning 
of  all  the  figures  and  classifications  and  specific  duties  and 
ad  valorem  duties.  Influential  persons  could  '^  fix ''  legisla- 
tion and  work  "  jokers  ''  in,  and  eventually  bring  into  ef- 
fect provisions  which  could  not  be  said  to  be  intended  by 
Congress  or  by  any  one  except  an  occasional  conniving  mem- 
ber of  Congress.  Our  tariffs  have  been  settled  in  ignorant 
and  irresponsible  fashion.  Of  this  we  have  become  pain- 
fully aware,  and  it  is  natural  that  we  should  look  for  some 
sort  of  a  remedy. 

A  permanent  tariff  commission,  it  may  well  be  argued, 
could  be,  and  would  be,  of  much  service.  It  could  ascertain 
just  what  a  given  duty  meant,  just  what  sort  of  arrangement 
and  classification  was  expedient,  whether  a  particular  phrase- 
ology entailed  consequences  not  at  all  obvious  on  the  surface. 
If  composed  of  really  able  and  experienced  men,  its  recom- 
mendations would  have  weight.  'No  one  supposes  that  Con- 
gress would  adopt  them  as  a  matter  of  course.  They  must 
always  be  in  line  with  the  general  system  of  industrial  policy, 
—  toward  protection  or  toward  free  trade,  toward  raising 
duties  or  reducing  them  —  which  the  political  conditions  de- 
termined. They  would  necessarily  be  subject  to  change  by 
Congress.  But  they  would  probably  have  a  strong  backing 
from  public  opinion ;  they  would  enable  high-minded  and 
conscientious  members  of  Congress  (and  these  constitute  the 
majority)  to  ascertain  the  exact  situation  and  to  support  care- 


186  Free  Trade,  the  Tariff  and  Reciprocity 

ful  legislation.  A  commission  might  greatly  improve  the 
situation. 

There  is  another  aspect  of  the  proposal  to  which  little 
attention  has  been  given  in  current  discussion,  and  which  is 
of  the  first  importance.  What  hind  of  a  commission  shall 
we  try  to  set  up  ?  Shall  it  be  an  entirely  independent  body, 
like  the  Interstate  Commerce  Commission  or  the  Federal 
Trade  Commission,  quite  separate  from  the  ordinary  admin- 
istrative agencies  of  the  Government  ?  Shall  it  be  concerned 
primarily  with  industrial  investigations,  and  shall  it  give 
advice  chiefly  on  questions  of  industrial  policy  ?  A  commis- 
sion quite  independent,  and  giving  attention  chiefly  to  mat- 
ters of  policy,  is  most  commonly  advocated.  And  yet  there 
are  serious  difiiculties  in  the  way  of  such  a  plan. 

In  the  first  place,  the  very  existence  of  a  permanent  tariff 
commission  whose  main  purpose  would  be  to  recommend 
tariff  legislation  to  Congress,  would  be  a  constant  incentive 
to  change.  The  only  excuse  for  the  continued  maintenance 
of  such  a  commission  would  be  that  the  tariff  needed  con- 
tinual readjustment.  The  commission  itself  would  feel 
bound  to  justify  its  usefulness  by  unremitting  investigation, 
and  it  would  necessarily  have  to  make  repeated  recommenda- 
tions to  Congress.  But  one  of  the  things  borne  in  on  every 
thoughtful  observer  of  tariff  changes,  whether  an  economist 
by  profession  or  an  experienced  man  of  affairs,  is  that  inces- 
sant changes  in  tariff  legislation  are  bad.  Better  a  low  tar- 
iff once  for  all  or  a  high  tariff  once  for  all,  than  constant 
shifting  or  incessant  suggestion  of  shifts.  The  industries 
of  a  country  can  adapt  themselves  to  almost  any  tariff  sys- 
tem if  only  that  system  be  settled  and  maintained.  More- 
over, one  among  the  few  general  principles  or  "  scientific '' 
statements  which  the  economist  can  authoritatively  lay  down 
is  that  such  benefits  as  accrue  from  a  system  of  free  trade 
are  secured  only  if  that  system  is  maintained  for  a  long 
time;  and,  on  the  other  hand,  that  such  gains  as  are  obtain- 


The  Proposal  for  a  Tariff  Commission  187 

able  from  protective  duties  (by  protection  to  young  indus- 
tries, for  example)  are  secured  only  if  the  protective  duties 
are  maintained  for  a  long  time.  A  permanent  tariff  commis- 
sion whose  function  it  was  to  make  repeated  reports  and  rec- 
ommendations would  tend  to  constant  modification,  constant 
change,  constant  unsettlement. 

Hence  if  we  are  to  have  a  commission  whose  duty  it  shall 
be  to  shape  the  tariff  or  solve  questions  of  policy,  I  am  in- 
clined to  think  well  of  some  such  plan  as  that  of  the  Tariff 
Board  of  1910-12.  Let  its  duty  be  to  make  inquiries, 
to  secure  a  body  of  accurate  information,  to  make  recom- 
mendations for  a  given  situation.  Let  it  be  avowedly  for  an 
immediate  purpose :  to  serve  Congress  and  the  committees 
in  framing  a  particular  piece  of  legislation.  Such  was  the 
case  also  with  the  Tariff  Commission  of  1882.  The  recom- 
mendations of  that  Commission,  it  is  true,  were  by  no  means 
followed  in  their  details  when  Congress  passed  the  Tariff 
Act  of  1883.  l^evertheless,  the  tariff  of  1883  was  a  better 
piece  of  legislation  because  of  the  recommendations  of  the 
Commission  than  it  would  have  been  without  them.  It  is  not 
too  much  to  expect  that  even  greater  weight  would  be  given 
to  the  recommendations  of  a  similar  commission  in  the  fu-  _ 
ture,  and  that  it  would  serve  even  more  to  make  a  tariff  j 
act  careful,  well-balanced,  consistent.  ^ 

It  is  conceivable,  however,  that  we  should  have  a  commis- 
sion whose  duties  should  be  not  solely  those  of  report  and 
recommendation  on  general  policy,  but  which  should  have  to 
do  largely  with  the  settlement  of  current  administrative 
questions.  This  is  precisely  the  situation  with  the  Inter- 
state Commerce  Commission  and  the  Federal  Trade  Commis- 
sion. They  have  stated  duties  in  connection  with  the  ad- 
ministration of  legislation.  These,  indeed,  are  their  chief 
duties.  The  Interstate  Commerce  Commission  is  a  sort  of 
court.  Its  chief  business  is  to  decide  specific  matters  at  issue 
between  the  shippers  and  the  railways.     The  new  Federal 


188  Free  Trade,  the  Tariff  and  Reciprocity 

Trade  Commission  is  given  jurisdiction  of  a  similar  kind. 
Both  have,  in  addition,  the  power  and  duty  to  make  investi- 
gation and  report.  But  it  is  not  incumbent  upon  them  to 
be  mainly  or  continuously  on  the  lookout  for  changes  in 
legislation.  They  are  chiefly  concerned  with  the  administra- 
tion and  improvement  of  the  existing  situation,  and  they 
recommend  legislation  so  far  as  their  experience  enforces 
upon  them  the  desirability  of  changes  consistent  with  the 
general  spirit  and  policy  of  the  legislation  already  in  force. 

!Now  there  are  administrative  questions  in  connection  with 
the  tariff  which  are  constantly  calling  for  solution,  and  which 
at  the  same  time  bring  to  light  the  need  of  changes  in  legis- 
lation. There  are  vexing  questions  of  classification  under  the 
tariff  —  whether  a  particular  piece  of  machinery  should  be 
classed  as  a  manufacture  of  wood  or  a  manufacture  of  iron, 
whether  the  chief  component  material  of  a  fabric  is  wool  or 
silk.  There  are  questions  on  the  methods  of  appraisal  of 
duties.  Inquiries  must  be  made  in  foreign  countries  relating 
to  the  values  upon  which  ad  valorem  duties  shall  be  assessed. 
Strictly  legal  questions  of  interpretation  arise,  which  now 
go  to  the  Court  of  Customs  Appeals.  Statistics  must  be  com- 
piled and  intelligently  presented. 

For  all  these  matters  we  now  have  dispersed  and  compli- 
cated arrangements.  We  have  the  Board  of  General  Ap- 
praisers, which  is  a  sort  of  court  for  deciding  on  the  ap- 
praisement of  merchandise.  The  Assistant  Secretary  of  the 
Treasury  in  charge  of  customs  instructs  collectors  on  the 
classification  of  customs;  and  the  Customs  Divisions  of  the 
Treasury  Department  have  similar  duties  for  the  routine 
cases.  There  are  special  agents  of  the  Treasury  who  go 
abroad  and  make  investigations  and  reports.  Consuls  and 
consular  agents  abroad  make  similar  investigations.  The 
Bureau  of  Domestic  and  Foreign  Commerce  in  the  Depart- 
ment of  Commerce  has  a  staff  of  commercial  agents  who 
make  reports  concerning  the  development  of  American  trade 


The  Proposal  for  a  Tariff  Commission  189 

in  foreign  countries.  On  the  other  hand,  the  newly  es- 
tablished Federal  Trade  Commission  is  making  inquiries  of 
its  own  concerning  the  possible  development  of  foreign  trade. 
A  number  of  agencies  are  working  upon  various  phases  of 
the  same  general  problem. 

There  is  thus  a  large  body  of  more  or  less  scattered  in- 
formation which  would  be  useful  to  Congress.  And  notwith- 
standing this  multiplicity  of  agencies,  there  remains  informa- 
tion which  a  committee  of  Congress  would  wish  to  have  and 
which  can  not  now  be  had,  or,  at  all  events,  is  not  readily 
accessible.  A  single  body,  having  the  duty  of  collating  and 
coordinating  the  available  information,  and  equipped  to  se- 
cure such  further  information  as  might  be  desired,  could 
render  important  service.  Further,  it  is  at  least  possible 
that  such  a  body  should  be  given  administrative  functions 
or  some  powers  of  supervision  and  coordination,  and  should 
thus  be  of  service  not  only  to  Congress  but  to  the  executive 
departments  also. 

There  are  two  possible  ways  of  gathering  and  coordinat- 
ing the  desired  information.  It  might  be  done  by  a  purely 
executive  board  or  sub-department ;  say,  a  bureau  consisting 
of  permanent  officials  in  the  Treasury  Department  or  in  the 
Department  of  Commerce.  Something  of  the  sort  exists 
in  the  Bureau  of  Foreign  and  Domestic  Commerce  recently 
established  in  the  Department  of  Commerce.  Under  this 
arrangement  the  information  would  be  given  to  Congress 
not  by  an  independent  tariff  board,  but  by  permanent  officials 
regularly  serving  in  the  executive  departments.  The  alterna- 
tive is  that  of  an  independent  board  having  no  direct  ad- 
ministrative duties  and  no  close  affiliation  with  any  existing 
department,  but  serving  as  a  sort  of  clearing  house  and  or- 
ganizer, and  responsible  to  Congress  alone. 

On  general  principles  there  is  much  in  favor  of  the  first 
plan.  It  would  seem,  indeed,  that  the  very  object  for  which 
the  various  officials  in  the  different  departments  exist  is  not 


190  Free  Trade,  the  Tariff  and  Reciprocity 

simply  the  administration  of  existing  laws  but  the  considera- 
tion and  suggestion  of  improvements  in  them.  Unfortu- 
nately, the  traditions  of  American  political  life  present  se- 
rious obstacles  to  the  assignment  of  such  functions  to  the 
department  officials.  The  higher  administrative  appoint- 
ments in  all  departments  are  regarded  as  political.  With 
every  Administration  the  personnel  changes.  ]N^ot  only  the 
members  of  the  Cabinet,  but  all  the  responsible  and  well-paid 
officials  are  shifted  with  every  political  overturn.  That  this 
is  a  serious  evil,  and  one  that  grows  more  serious  with  the 
increasing  complexity  of  legislative  problems,  is  recognized 
by  every  intelligent  observer.  The  great  bane  of  American 
politics  is  the  absence  of  good  permanent  positions.  The 
good  positions  are  not  permanent,  and  the  permanent  posi- 
tions are  not  good.  It  is  only  the  minor  posts,  whose  salaries 
are  not  large  enough  to  constitute  political  plums,  that  are 
left  to  permanent  officials.  And  yet  these  obscure  permanent 
officials,  because  often  they  alone  are  experienced  and  well- 
informed,  have  great  influence  in  shaping  current  adminis- 
trative practice  and  the  details  of  legislation  as  well.  It  has 
been  said  with  truth  that  the  Government  of  the  United 
States  is  run  by  $1,500  clerks.  We  have  sore  need  in  our 
public  service  of  a  body  of  able,  well-paid,  permanent  offi- 
cials, whose  positions  shall  not  be  affected  by  party  changes, 
who  shall  not  simply  follow  in  mechanical  fashion  the  prece- 
dents of  their  offices  as  they  have  found  them,  who  shall  be 
able  to  give  intelligent  advice  as  well  as  useful  information. 
Nevertheless,  it  will  be  urged,  and  with  much  force,  that 
under  the  existing  traditions  of  our  political  life  the  only 
way  to  secure  a  permanent,  dignified,  able,  non-partisan  body 
is  through  the  establishment  of  an  independent  board.  A 
board  composed  of  administrative  officials  would  necessarily 
be  subordinate  to  the  heads  of  the  several  Cabinet  depart- 
ments, and  would  be  supposed  to  be  under  their  political  in- 
fluence.    To  have   the   desired   non-partisan   and   impartial 


The  Proposal  for  a  Tariff  Commission  191 

character,  it  is  said  that  a  tariff  board  must  be  composed 
of  new  appointees  —  independent  persons,  and  men  of  larger 
caliber  than  can  now  be  expected  as  sub-officials  in  the  de- 
partments. One's  attitude  on  a  problem  of  this  sort  is  neces- 
sarily influenced  by  one's  general  expectations  and  hopes  on 
political  matters.  Will  there  never  be  in  our  Federal  serv- 
ice a  permanent  body  of  officials,  experts  in  their  subjects,  not 
changing  with  every  Administration?  Will  public  service 
never  offer  a  professional  career  to  men  of  large  ability? 
Will  all  the  good  places  in  the  departments  always  remain 
within  the  spoils  system  ?  I  can  understand  that,  in  view  of 
the  rooted  habits  of  the  present  and  the  past,  it  may  be  con- 
cluded that  permanent  expert  service  on  the  tariff  can  be  got 
only  by  the  establishment  of  a  separate  commission.  I  hope 
for  myself  that  w^e  shall  learn  to  make  our  regular  admin- 
istrative machinery  better,  that  we  shall  improve  the  existing 
system  step  by  step  instead  of  getting  round  it  step  by  step. 
But  it  is  easy  to  understand  the  attitude  of  those  who  believe 
existing  traditions  and  ways,  even  though  admittedly  bad, 
to  be  so  strongly  intrenched  as  to  make  it  hopeless  to  attack 
them  directly. 

The  essential  thing  is  that  we  should  have  a  permanent 
and  really  non-partisan  set  of  officials  whose  first  duty  should 
be  to  assist  Congress  in  the  intelligent  and  careful  framing 
of  tariff  legislation.  Its  main  function  should  not  be  to  give 
advice  to  Congress  upon  questions  of  policy,  or  to  undertake 
investigations  which  rest  upon  the  assumption  that  some 
particular  policy  is  to  be  carried  out.  It  has  been  proposed, 
for  example,  to  establish  a  tariff  commission  whose  most  con- 
spicuous duty  should  be  to  ascertain  the  difference  between 
cost  of  production  in  the  United  States  and  cost  of  produc- 
tion in  foreign  countries;  the  assumption  being  that  this  is 
the  basis  upon  which  tariff  legislation  ought  to  be  constructed. 
It  is  tolerably  certain  that  a  tariff  commission  which  pro- 
ceeded on  a  basis  of  this  sort,  and  whose  functions  were 


192  Free  Trade,  the  Tariff  and  Reciprocity 

mainly  concerned  with  investigations  implying  the  applica- 
tion of  this  principle,  would  be  under  suspicion,  and  would 
probably  be  turned  out  whenever  a  political  party  came  in 
by  whom  this  particular  principle  was  not  accepted.  And, 
similarly,  any  commission  which  is  established  as  a  move  in 
the  political  game,  even  though  not  overtly  for  any  specified 
sort  of  investigation,  will  be  under  suspicion,  and  will  be 
given  a  cold  shoulder  when  a  new  party  comes  in.  This  was 
precisely  the  case  with  the  Tariff  Board  of  the  Taft  Admin- 
istration. It  was  a  good  board,  and  it  did  good  work.  But 
it  was  regarded,  not  unnaturally,  as  a  device  of  the  Repub- 
licans, and  it  was  consequently  dropped  when  the  Democrats 
came.  If  we  are  realh^  to  have  a  useful,  permanent^  non- 
partisan board,  it  must  be  appointed  in  such  a  way,  and  its 
duties  must  be  defined  in  such  a  way,  as  to  make  clear  its 
purely  advisory  and  non-political  functions.  ^N^ecessarily, 
much  would  depend  upon  its  personnel ;  but  much  also  would 
depend  upon  the  attitude  of  the  political  parties  at  the  time 
of  its  establishment.  If  its  establishment  is  simply  a  polit- 
ical move  by  one  party  or  the  other,  it  is  almost  certainly 
doomed  to  failure. 

It  does  not  follow  that  a  tariff  board  can  be  of  no  service 
whatever  in  guiding  Congress  and  the  country  on  the  larger 
and  more  difficult  questions  of  industrial  policy.  It  could  un- 
dertake investigations  on  the  character  and  the  development 
of  American  industries,  on  the  conditions  of  competition  be- 
tween foreign  and  domestic  industries,  on  the  prospects  of 
growth  and  development  for  American  industries,  which 
would  throw  light  on  disputed  questions  of  industrial  policy. 
Investigations  of  this  sort,  however,  take  time,  and  are  more 
likely  to  be  carried  out  with  sole  regard  to  the  ascertainment 
of  the  facts  if  they  are  not  undertaken  with  direct  reference 
to  any  impending  legislation  or  proposals  for  legislation. 
They  should  be  conducted  slowly,  quietly,  without  any  flour- 
ish of  trumpets.     They  are  more  likely  to  command  the  re- 


The  Proposal  for  a  Tariff  Com/mission  103 

spect  of  Congress  and  of  the  public  if  carried  on  by  a  board 
which  had  already  established  its  usefulness  and  its  impartial 
spirit  by  routine  work  more  nearly  of  an  administrative  sort. 
The  more  ambitious  and  high  sounding  its  duties,  the  less 
likely  is  it  to  be  really  successful.  Let  it  be  given  mainly 
the  function  of  assisting  Congress  in  the  intelligent  elabora- 
tion of  whatever  policy  the  country  has  decided  to  follow, 
and  make  no  pretense  of  removing  the  determination  of  pol- 
icy from  the  quarter  where  in  the  end  it  necessarily  belongs : 
Congress  and  the  voters. 


XI 

TAEIFF  PEOBLEMS  AFTEK  THE  WAR  ^ 

This  paper,  dealing  with  the  tariff  problems  that  will  arise 
in  consequence  of  war  disturbances,  will  be  restricted  to  such 
as  have  a  direct  and  close  connection  with  tariff  legislation. 
There  is  no  occasion  for  considering  here  those  abnormal  con- 
ditions which  have  only  an  indirect  bearing  upon  tariff  leg- 
islation —  the  extraordinary  development  of  the  munition- 
works,  or  the  unusual  conditions  with  regard  to  the  supply 
of  some  raw  materials,  like  hides  and  leather.  Many  in- 
dustries for  whose  products  there  has  been  a  marked  war  de- 
mand will  have  to  face  problems  of  readjustment  after  the 
war.  But  tariff  legislation  can  do  little  for  the  war  babies. 
For  tariff  purposes  it  is  the  non-war  industries  that  call  for 
attention  —  those  which  have  been  stimulated  by  the  restric- 
tion or  disappearance  of  imports.  Many  articles  formerly 
obtained  from  abroad  have  come  to  be  made  in  the  United 
States.  What  is  to  happen  to  the  industries  which  now  pro- 
vide them  ?  On  what  principles  shall  we  proceed  in  readjust- 
ing tariff  rates  on  commodities  which  were  imported  before 
the  war,  and  not  improbably  will  be  again  imported  after  the 
war,  if  tariff  duties  remain  as  they  were  before  ? 

A  kindred  question,  and  indeed  in  many  respects  the  same 
question,  is  whether  the  United  States  shall  in  the  future  aim 
to  be  an  economically  independent  country,  self-contained 
and  self-sufficing.  Shall  we  look  forward  to  a  resumption  of 
international  trade  on  substantially  the  same  lines  as  were 

1  Reprinted  by  permission  of  the  publishers,  E.  P.  Button  A;  Co.,  from 
the  volume  on  American  Problems  of  Reconstruction,  second  edition, 
1919. 

194 


Tariff  Problems  After  the   War  195 

followed  in  the  past,  or  to  a  world  order  entirely  new?  It 
is  inevitable  that  foreign  trade  shall  be  in  some  important 
respects  very  different  from  what  it  was  before.  But  how 
great  is  the  change  likely  to  be  and  how  far  shall  we  endeavor 
to  regulate  it  and  control  it?  In  some  quarters  there  is  ex- 
pectation of  a  great  expansion  of  exports  after  the  war,  a 
great  increase  of  foreign  investments,  a  great  development 
of  the  mercantile  marine  and  of  the  carrying  trade,  close  con- 
nection of  the  United  States  with  industrial  matters  abroad 
as  well  as  with  foreign  politics.  Others  look  forward  to  a 
diminution  of  imports,  to  less  reliance  upon  foreign  supply, 
to  domestic  production  of  things  formerly  bought  abroad,  to 
the  maximum  of  industrial  independence  and  self-sufficiency. 
These  are  very  different  expectations  and  very  different  points 
of  view.  They  are  not  readily  to  be  reconciled.  If  exports 
greatly  increase,  so  will  imports.  If  imports  are  much  re- 
duced, exports  also  must  be  expected  to  shrink.  The  policy 
which  we  shall  follow  with  regard  to  tariff  legislation  must 
be  consistent  wdth  our  policy  in  the  wider  political  and  in- 
dustrial problems  involved. 

The  terms  "  self-sufficiency ''  and  ^'  economic  indepen- 
dence ''  are  vague.  'No  one  would  propose  to  cut  off  foreign 
trade  entirely.  Whatever  our  tariff  policy,  we  shall  con- 
tinue to  export  largely  and  to  import  largely.  True,  it  is 
tolerably  certain  that  the  relation  between  exports  and  im- 
ports will  not  be  the  same  as  it  was  before  the  war.  We 
are  not  likely  to  have  the  remarkable  excess  of  merchandise 
exports,  or  so-called  ^'  favorable "  balance  of  trade,  which 
the  records  have  shown  for  the  last  thirty  or  forty  years. 
In  any  case  we  shall  import  on  a  great  scale.  If  there  is  to 
be  that  increase  of  exports,  absolute  and  relative,  which  is 
confidently  expected  in  many  quarters,  we  shall  import  in 
even  greater  quantities  than  before.  Whatever  the  future 
relation  between  imports  and  exports,  foreign  trade  is  certain 
to   remain   a   large   factor   in    our   industrial   organization. 


196  Free  Trade,  the  Tariff  a7id  Reciprocity 

Complete  self-sufficiency,  in  the  sense  of  domestic  production 
of  everything  we  use,  is  out  of  the  question,  and  in  any  case 
it  is  inconsistent  with  the  ambition  for  an  expanding  export 
trade.     "  Economic  independence ''  is  a  matter  of  degree. 

Imported  goods  —  those  imported  in  the  past  and  those 
which  may  continue  to  be  imported  in  the  future  —  are  di- 
visible into  three  classes,  which  may  be  styled,  resepectively, 
the  military,  the  essential,  the  non-essential.  The  line  be- 
tween one  and  the  other  of  the  three  cannot  always  be  drawn 
with  precision.  There  will  be  differences  of  opinion  on  the 
place  of  many  a  commodity  in  one  or  the  other  of  them. 
But  they  are  broadly  separable;  and  the  tariff  situation 
will  be  made  clearer  if  they  are  taken  up  one  by  one. 

The  first  class,  military  commodities,  includes  things 
needed  directly  for  war  purposes,  such  as  rifles,  artillery, 
munitions.  The  second,  the  essentials,  include  things  not 
indeed  needed  primarily  for  military  use,  but  of  vital  im- 
portance to  the  life  of  the  nation.  Such  are  the  fundamental 
food  materials,  fuel,  clothing  materials,  timber.  With  re- 
gard to  these,  the  question  whether  their  domestic  produc- 
tion be  deemed  essential  is  affected  by  the  possibility  of  ob- 
taining or  increasing  a  supply  with  comparative  ease  and 
speed.  A  thing  may  be  essential ;  yet  if  the  needed  supply 
can  be  rapidly  secured  when  needed,  it  is  no  great  matter 
if  we  do  not  now  possess  a  stock.  The  third  class  ranges 
all  the  way  from  luxuries  which  are  clearly  superfluous  to 
conveniences  and  comforts  which  habit  has  made  it  difficult 
to  dispense  with. 

I. MILITARY    ARTICLES 

As  regards  the  first  class,  guns,  powder,  military  equip- 
ment, explosives,  armor  plate,  and  the  like,  the  principle  is 
simple.  It  is  obvious  that  there  must  not  be  complete  de- 
pendence on  foreign  sources  of  supply.     The  only  disput- 


Tariff  Problems  After  the    War  lUT 

able  question  is  whether  munitions  shall  be  manufactured  by 
the  Government  directly  or  by  private  industries  to  be  sup- 
ported by  government  aid  if  unable  to  hold  their  own  without 
it.  If  private  industries  are  subsidized  or  supported,  there 
must  be  some  control  and  regulation  of  their  profits.  As  to 
such  things  practically  no  one  would  advocate  a  policy  of 
complete  dependence  on  imports. 

The  principle  is  simple  and  clear.  But  how  far  shall  we 
carry  it  ?  Shall  we  go  so  far  as  to  assure  the  production 
within  our  borders  of  the  entire  supply  of  every  item  needed 
for  gi'eat  military  and  naval  establishments  ? 

During  the  early  stages  of  the  European  war  this  ques- 
tion was  raised  in  connection  with  our  own  great  exports  of 
munitions.  We  were  then  neutral ;  we  were  selling  muni- 
tions on  a  great  scale  to  warring  countries.  Under  inter- 
national law  our  right  to  do  so  was  clear.  It  is  as  well  set- 
tled as  anything  in  international  law  that  a  neutral  nation 
may  lawfully  allow  its  citizens  to  sell  munitions  and  any 
contraband  of  war  to  belligerents  —  subject,  of  course,  to  the 
chance  of  capture.  But  many  people  asked,  is  this  rule  of 
international  law,  settled  though  it  be,  a  good  one  ?  Should 
the  law  be  modified?  It  was  argued  that  the  extraordinary 
scale  of  our  exports  showed  the  sale  of  munitions  to  be  in 
effect  unneutral,  and  inconsistent  with  a  real  regard  for  good 
order  and  peace.  The  answer  made  —  by  Mr.  Taft,  for  ex- 
ample —  was  that  such  transactions  were  not  unneutral,  be- 
ing in  effect  conducive  to  peace,  not  to  war.  Quite  apart 
from  the  question  of  making  a  change  during  the  very  time 
of  war,  and  in  such  way  as  necessarily  and  deliberately  to 
influence  the  fortunes  of  the  conflict  then  raging,  the  point 
was  made  that  if  a  belligerent  country  could  not  buy  muni- 
tions from  neutrals,  it  must  be  prepared  to  supply  its  needs 
entirely  and  once  for  all  from  its  own  resources.  It  must 
make  for  itself,  or  store  on  a  great  scale,  cannon,  rifles,  ex- 
plosives, all  munitions.     No  such  vast  preparation  would  be 


198  Free  Trade,  the  Tariff  and  Beciprocity 

necessary  if  it  could  purchase  from  neutrals.  A  country 
which  looks  to  peace,  hopes  for  peace,  works  for  peace,  should 
not  consistently  adopt  a  policy  of  the  most  thoroughgoing 
preparation  for  war.  The  argument  which  thus  defended 
the  position  of  the  United  States  in  the  international  con- 
troversy evidently  ran  counter  to  a  program  of  all-embracing 
preparation.  It  assumed  that  even  for  direct  military  pur- 
poses something  short  of  self-sufficiency  might  be  in  accord 
with  the  best  international  policy.  Even  here,  it  thus  ap- 
pears, are  some  questions  of  degree,  some  stretches  of  de- 
batable ground.  Complete  dependence  on  foreigners  for  the 
apparatus  of  war  is  not  conceivable  for  a  great  nation;  but 
absolute  self-sufficiency  is  not  necessarily  the  wisest  policy. 

In  the  same  class  as  munitions  in  the  strict  sense  would  be 
placed  materials  indispensable  for  military  supply  and  equip- 
ment. Of  these,  at  least  a  minimum  needed  for  the  supply 
of  the  army  and  navy  should  be  produced  at  home.  Among 
such  are  iron  and  steel,  copper,  leather,  wool.  To  be  abso- 
lutely dependent  upon  foreign  countries  for  them  is  to  be 
under  a  grave  military  disadvantage.  But  in  this  regard 
there  is  no  serious  difficulty  for  the  United  States.  Under 
any  circumstances  we  shall  produce  enough  to  supply  the 
strictly  military  needs.  Conceivably  the  civilian  population 
might  be  inconvenienced  in  time  of  war,  possibly  subjected  to 
positive  suffering,  because  of  a  lack  of  these  fundamentals; 
as  was  the  case  in  Germany  because  of  the  lack  of  wool  and 
leather.  But  the  civilian  supply  raises  a  different  set  of 
problems,  to  be  considered  under  our  second  head.  So  far 
as  concerns  military  needs  proper,  the  United  States  needs 
to  be  watchful  concerning  its  supply  of  the  guns,  the  ex- 
plosives, the  war  ships;  but  as  regards  most  raw  materials, 
and  as  regards  the  plant,  equipment,  and  machinery  neces- 
sary for  working  them  up,  the  situation  need  cause  no  fore- 
boding. 

A   difficult   question   arises   concerning   some   articles   of 


Tariff  Problems  After  the  War  199 

minor  quantitative  importance,  which  are  not  readily  obtain- 
able by  domestic  production,  perhaps  are  not  so  obtainable  at 
all,  yet  are  important  for  military  purposes.  Such  are  nickel 
and  tungsten,  used  in  hardening  the  ferrous  metals ;  antimony, 
used  for  shrapnel  shells ;  quicksilver,  indispensable  for  firing 
any  kind  of  ammunition;  nitrogen  (ordinarily  in  the  form 
of  nitrates),  of  the  first  importance  in  the  manufacture  of 
explosives.  We  have  practically  no  nickel,  no  deposits  of  ni- 
trates, sparse  deposits  of  antimony,  uncertain  ones  of  tung- 
sten and  of  quicksilver.  What  is  the  best  way  of  making 
military  provision  ? 

There  are  two  ways.  One  is  to  stimulate  domestic  pro- 
duction by  tariff  duties  or  bounties,  or  by  the  equivalent  of 
bounties  through  govei*nment  purchase  at  guaranteed  prices. 
The  other  is  the  accumulation  by  the  Government  of  a  large 
fixed  stock  or  reserve,  to  be  kept  always  in  hand  and  to  be 
available  at  once  in  case  of  war.  The  choice  between  the  two 
is  sometimes  confused  by  an  advocacy  of  domestic  supply 
and  of  protection  to  domestic  producers,  on  grounds  of  gen- 
eral industrial  policy.  It  is  urged  we  should  not  be  de- 
pendent on  foreigners  for  these  articles;  "  dependence  "  being 
used  with  the  same  implications  as  the  term  would  suggest 
in  the  case  of  non-essentials  like  toys  or  chinaware.  Greneral 
arguments  for  protection  are  interwoven  with  the  specific 
arguments  for  military  preparedness.  From  the  military 
point  of  view,  much  is  to  be  said  in  favor  of  the  policy  of 
accumulating  an  ample  store ;  it  is  more  secure  than  are  mea- 
ger domestic  mines  and  deposits.  Such  domestic  sources  of 
supply  are  subject  to  political  as  well  as  physical  vicissitudes. 
A  protective  policy,  even  though  instituted  with  an  eye  to 
military  needs,  may  be  given  up  when  a  long  period  of  peace 
has  obliterated  the  traditions  of  warlike  preparation. 

A  peculiar  case  under  this  head  is  that  of  the  coal-tar  in- 
dustries, which  furnish  at  once  dyestuffs  and  explosives. 
The  Germans,  as  we  all  know,  had  a  unique  command  of 


200  Free  Trade,  the  Tariff  and  Reciprocity 

them  —  a  dominance  such  as  they  had  in  no  other  manufac- 
turing industry.  Dyestuffs  in  themselves  do  not  belong  in 
the  military  class ;  indeed,  do  not  seem  to  belong  even  in  the 
essential  class.  Though  often  spoken  of  as  essentials  for  tex- 
tile manufactures,  they  can  hardly  be  said  to  be  indispensable 
to  the  life  of  the  nation  or  even  to  its  comfort.  True,  a  tex- 
tile concern  which  lacks  good  dyestuffs  must  go  to  the  wall  if 
its  competitors  are  supplied  with  them;  but  if  all  alike  are 
cut  off,  the  consequence  is  simply  that  the  community,  and  es- 
pecially the  women,  will  have  to  get  on  with  fabrics  not  quite 
so  alluring  and  tempting,  perhaps  not  quite  so  fast  in  color, 
as  they  might  be.  The  ground  for  considering  articles  of 
this  kind  in  connection  with  military  needs  is  the  close  in- 
terrelation between  explosives  and  dyestuffs  in  the  coal-tar 
industry.  It  is  not  entirely  true,  as  is  sometimes  intimated, 
that  a  dyestuffs-plant  can  be  converted  into  an  explosive-plant 
over-night.  But  true  it  is  that  the  early  steps,  and  many  of 
the  intermediate  steps,  in  the  production  from  coal-tar  of 
dyestuffs  and  of  some  important  explosives,  are  the  same.  At 
a  point  in  the  processes  which  is  considerably  advanced  there 
can  readily  be  a  diversion  in  one  direction  or  the  other  — 
either  to  the  manufacture  of  dyestuffs  or  to  the  manufacture 
of  the  shell-filling  high  explosives.  ISTot  only  has  the  same 
plant  much  apparatus  which  is  available  for  both  purposes, 
but  the  same  set  of  trained  chemists  and  skilled  workmen  can 
be  used.  The  possibility  of  alternative  use  is  thus  one  of 
degree,  of  flexibility;  and  the  feasibility  of  transfer  to  mili- 
tary uses  is  sometimes  exaggerated.  Explosives  as  a  rule 
are  greater  in  bulk  than  the  related  dyestuffs ;  under  ordinary 
circumstances  some  readjustment  of  plant  is  necessary  for 
getting  a  supply  of  explosives  from  a  dyestuffs-plant.  But 
after  all  qualifications  are  made,  a  strong  argument  remains 
in  favor  of  regarding  the  dyestuffs  manufacture  as  potentially 
a  military  industry.  It  has  the  further  advantage  of  being 
a  military  industry  which  can  be  utilized  in  times  of  peace. 


Tariff  Problems  After  the   War  201 

There  is  no  question  that  early  in  the  war  the  German  dye- 
stuffs-plants  were  turned  to  the  production  of  explosives.  It 
is  urged  that  such  utilization  of  them  was  deliberately  had  in 
view,  as  one  of  the  many  preparations  for  the  great  war. 
And  it  is  well  known  that  the  larger  American  manufacturers 
of  explosives  have  turned  to  the  production  of  dyestuffs  as 
an  industry  for  times  of  peace. 

There  are  other  reasons  —  to  digress  for  a  moment  —  why 
the  dyestuffs  industry  stands  by  itself.  Not  so  much  that  it 
is  a  "  key  "  industry ;  the  extent  to  which  dyestuft's  dominate 
the  textile  and  other  manufactures  is  often  exaggerated.  But 
the  complete  control  in  the  industry  which  the  Germans  aimed 
at  before  the  war,  and  largely  succeeded  in  securing,  threat- 
ened consequences  which  the  most  convinced  free-trader  must 
regard  with  apprehension.  Combinations  in  the  nature  of 
gentlemen's  agreements  were  in  effect  even  then  between  the 
different  concerns.  Now,  as  all  advices  indicate,  there  is  a 
firm  kartell,  or  tight  combination.  Here  is  a  foreign  monop- 
oly —  a  real  monopoly,  and  not  merely  (what  is  often  styled 
a  monopoly)  localization  in  a  foreign  country  of  an  industry 
within  which  there  are  many  competing  concerns.  A  solid 
German  kartell  in  the  coal-tar  industry  is  pretty  sure  to  be  a 
strenuous  competitor.  It  may  try  to  crush  competition  in 
foreign  countries  by  selling  at  cost  or  below  cost,  and  then  re- 
coup by  advanced  prices  when  the  competitors  are  destroyed. 
Possibilities  of  this  sort  are  often  paraded  as  a  bugaboo  by 
extreme  protectionists,  when  the  facts  give  little  occasion 
for  concern.  But  here  is  a  case  where  there  may  be  veritable 
need  for  industrial  self-defense. 

And  yet  it  remains,  in  some  respects,  a  puzzling  case.  The 
German  concerns  have  been  ruthless  competitors,  and  may 
still  be.  Yet  they  have  also  been,  and  perhaps  will  remain, 
more  efficient  producers  than  their  rivals  in  other  countries. 
They  do  the  job  well.  They  make  good  dyestuffs,  and  make 
them  (certainly  did  make  them)   cheaper  than  competitors 


202  Free  Trade,  the  Tariff  and  Reciprocity 

abroad.  Industrial,  technical,  social  conditions  favored  the 
industry  in  Germany  as  nowhere  else.  To  shut  the  Germans 
out  entirely  would  seem  of  doubtful  advantage  to  the  rest  of 
the  world.  A  middle  ground  should  be  found  between  com- 
plete exclusion  and  unfettered  freedom.  Possibly,  and  much 
to  be  desired,  is  some  international  agreement  providing  for 
fair  competition,  no  deliberate  dumping,  no  cut-throat  in- 
dustrial warfare;  a  consummation  depending  on  the  kind  of 
peace  —  a  true  peace,  a  real  concord  of  nations  ?  —  which 
shall  be  eventually  secured. 

Still  another  consideration  must  be  borne  in  mind.  The 
complete  dependence  on  a  single  country  for  the  main  dye- 
stuffs,  of  which  we  became  unpleasantly  aware  in  1915,  is 
not  likely  to  be  again  experienced.  Other  countries,  no  less 
than  the  United  States,  are  concerned  that  this  situation  shall 
not  recur,  and  are  developing  dyestuffs  industries  of  their 
own ;  notably  Great  Britain  and  France.  Switzerland,  long 
the  seat  of  a  dyestuffs  industry,  will  remain  so.  In  the  fu- 
ture there  will  be  competition  between  manufacturers  in  dif- 
ferent nations  to  a  vastly  greater  degree  than  before  the  war, 
and  hence  no  longer  a  reliance  on  any  one  source  of  supply. 
The  chance  that  all  sources  will  suddenly  be  cut  off  from 
the  United  States  is  almost  negligible.  Even  if  there  be 
much  reliance  on  imported  supplies,  the  conditions  will  be 
less  fraught  with  danger  than  those  which  prevailed  before 
the  war. 


II. ESSENTIAL    ARTICLES 

I^ext,  the  second  class  of  commodities:  essentials  for  the 
civilian  population.  Shall  the  nation  be  quite  independent 
of  foreign  supplies  for  its  grain  and  its  meat,  its  wool,  leather, 
cotton,  coal,  copper,  iron,  and  steel  ?  The  problem  for  many 
countries,  and  indeed  for  most  countries,  is  complex  and 
difficult.     Italy  has  no  coal ;  in  what  way  shall  she  make  pro- 


Tariff  Problems  After  the  War  203 

vision  for  the  possible  curtailment  of  foreign  supplies  of 
coal  in  case  of  war  ?  Italy  is  no  less  lacking  in  iron  and 
steel.  France  has  no  copper;  Germany  very  little.  Ger- 
many cannot  be  self-sufficing  as  regards  many  commodities  — 
not  only  copper,  but  wool,  leather,  cotton  —  without  huge  and 
now  impossible  expansion.  Neither  can  France  or  Italy  or 
Austria.  The  British  Isles  are  self-sufficing  only  as  regards 
coal  and  iron.  Foodstuffs  and  raw  materials  of  all  kinds 
must  be  obtained  by  the  British  from  overseas  —  either  from 
foreign  countries  or  from  colonies  or  self-governing  domin- 
ions. Tariff  protection  for  these  materials  and  their  do- 
mestic production  would  mean  a  crippling  of  British  manu- 
facturing industries.  And  in  many  cases  tariff  protection 
could  not  possibly  achieve  self-sufficiency. 

But  this  phase  of  the  problem  need  cause  the  United  States 
less  concern  than  other  nations.  We  are  fortunate  in  being 
able  to  procure  within  our  own  borders  grain,  meat,  coal,  iron, 
copper,  timber,  cotton,  wool,  leather,  in  quantities  sufficient 
for  our  essential  needs.  True,  we  do  import  some  important 
materials  in  considerable  amounts,  such  as  wool  and  hides. 
But  we  are  not  so  dependent  on  foreign  supply  as  to  be  in  a 
position  of  imminent  peril  or  serious  suffering,  even  though 
the  foreign  supply  should  be  entirely  cut  off. 

There  are  some  things,  however,  which  may  give  us  occa- 
sion for  concern,  or  at  least  for  sober  reflection.  How  far 
they  are  absolutely  essential,  may  be  an  open  question.  But 
there  are  much  needed  articles  for  which  we  were  quite  de- 
pendent on  foreign  countries  before  the  war.  A  typical  case 
is  that  of  potash.  The  potash  situation  is  peculiar  in  that 
here  also  Germany  had  a  monopoly.  And  the  monopoly  hi^d 
been  for  some  time  a  true  monopoly,  not  merely  a  geograph- 
ical concentration  of  supply.  There  was  a  strong  kartell,  in 
which  the  Prussian  Government,  as  mine-owner  and  producer, 
had  a  controlling  influence.  Potash  is  mined  in  great  quan- 
tities from  the  remarkable  German  and  Alsatian  deposits, 


204  Free  Trade,  the  Tariff  and  Reciprocity 

and  has  been  exported  by  the  Germans  to  many  parts 
of  the  world.  The  United  States  has  been  the  largest  among 
the  foreign  purchasers.  The  Germans  think  it  is  indispens- 
able to  us  —  as  indispensable  to  us  as  our  cotton  is  to  their 
textile  industry.  Potash  in  exchange  for  cotton  —  this  was 
their  bargaining  cry. 

Potash  is  used  for  manufacturing  purposes,  as  well  as  for 
agriculture.  It  is  im^portant,  for  instance,  for  some  branches 
of  glass  manufacture ;  for  matches  and  some  kinds  of  explo- 
sives ;  for  making  soft  soaps.  As  regards  these  uses  no  com- 
pletely satisfactory  substitute  is  available.  In  other  indus- 
tries, though  convenient,  it  is  replaceable  by  satisfactory  sub- 
stitutes. But  for  all  the  manufacturing  uses  taken  together 
the  quantitative  demand  is  not  considerable,  and  probably  can 
be  met  without  serious  difficulty  from  domestic  resources. 
Potash  in  small  amounts  can  be  got  from  certain  brine  de- 
posits in  Utah  and  the  western  part  of  Nebraska,  and  in  prob- 
ably larger  quantities  from  the  analogous  deposit  at  Searles 
Lake  in  California.  Some  can  also  be  got  from  alunite, 
greensand,  wool  scourings,  distiller's  and  sugar-beet-factory 
wastes,  as  well  as  from  the  giant  kelp  which  fringes  parts  of 
our  western  coast.  Still  other  important  potential  sources 
of  supply  are  cement  dust  and  dust  from  blast  furnaces. 
The  cost  of  producing  potash  from  many  of  these  sources 
will  probably  be  much  higher  than  the  pre-war  prices  of  the 
imported  potash ;  but  since  no  considerable  amounts  are  used 
for  any  single  manufacturing  purpose,  higher  price  of  the 
material  would  not  be  of  vital  consequence. 

It  is  in  agriculture  that  really  large  supplies  are  needed, 
and  are  needed  at  low  prices.  Of  the  pre-war  imports  ninety- 
five  per  cent  went  into  fertilizers.  And  the  plain  fact  must 
be  faced  that,  so  far  as  agricultural  needs  are  concerned,  there 
is  nothing  now  in  sight  effectively  to  break  the  German  mo- 
nopoly. The  226,000  tons  of  actual  potash  which  were  being 
used  for  fertilizer  purposes  before  the  war  cannot  be  obtained 


Tariff  Problems  After  the   TVar  205 

for  some  time  from  any  visible  sources  except  the  German 
mines,  for  our  total  output  for  1918  promises  to  be  only  about 
60,000  tons  of  actual  potash.  How  far  is  the  country  in 
this  regard  vitally  dependent  on  a  foreign  commodity  ? 

Here  is  the  situation.  Over  large  areas  of  the  South  and 
East  our  agricultural  crops  are  grown  with  the  use  of  large 
supplies  of  fertilizers  in  which,  excepting  for  temporary  pe- 
riods, potash  is  an  indispensable  ingredient.  Such  is  the  case 
in  the  citrus  groves  of  Florida  and  Porto  Rico,  in  the  potato 
areas  of  Maine  and  the  Atlantic  seaboard,  the  tobacco-fields 
of  Kentucky  and  the  Connecticut  Valley,  truck-garden  re- 
gions from  the  Mississippi  River  to  the  Atlantic  and  from  the 
Gulf  of  Mexico  to  Canada,  and  in  most  of  the  cotton-fields 
east  of  the  state  of  Mississippi.  Potash  is  also  needed  for 
some  crops  in  Ohio,  Indiana,  and  other  of  the  Middle-West- 
ern states,  including  many  of  the  sandy  potato  soils  of  Wis- 
consin and  Minnesota,  as  well  as  the  great  areas  of  peat  soils 
in  all  parts  of  the  country.  In  these  regions  its  lack  means 
serious  embarrassment  and  need  of  difficult  readjustment. 
But  fortunately  American  agriculture  in  general  is  not  so 
seriously  dependent.  In  the  great  Central  region  of  the 
country,  potash  is  only  needed  here  and  there  for  special 
crops,  such  as  potatoes,  onions,  and  tobacco.  The  heart  of 
the  country  is  almost  completely  independent  of  this  partic- 
ular plant  food.  As  time  goes  on,  and  the  inevitable  transi- 
tion to  more  intensive  cultivation  takes  place,  American  ag- 
riculture not  only  in  the  East  and  South,  but  also  west  of  the 
Alleghenies,  if  it  is  to  meet  the  food  requirements  of  a  rap- 
idly increasing  population,  will  indeed  need  increasing  sup- 
plies of  phosphates,  of  nitrogen,  and  of  potash  also.  But 
this  ultimate  need  is  not  a  matter  for  present  concern.  Dur- 
ing the  period  of  readjustment  after  the  war,  the  country  as 
a  whole  will  be  more  dependent  on  artificial  fertilizers  than 
it  has  been  in  the  past. 

In  the  regions  which  may  be  called  dependent,  again,  the 


206  Free  Trade,  the  Tariff  and  Reciprocity 

need  of  potash  could  be  lessened,  but  not  overcome,  by  a  com- 
plete change  of  agricultural  procedure.  Our  agricultural 
methods  and  crop  specializations  have  been  adjusted  to  the 
available  fertilizer  supplies  and  to  the  market  demand  for 
special  crops.  Fifty  years  ago,  even  thirty  years  ago,  com- 
mercial fertilizers,  though  then  they  would  have  been  valuable 
in  the  East  and  South,  were  little  used.  Extensive  crop  spe- 
cialization was  practically  in  its  infancy.  It  is  not  out  of 
the  question  that  there  should  be  a  return  in  some  degree  to 
the  agricultural  methods  of  former  times:  more  barn-yard 
manure,  a  different  rotation  of  crops,  a  self-sustaining  agri- 
culture. Such  a  change,  however,  would  entail  all  the  diffi- 
culties of  transition.  Farmers  are  traditionally  conservative, 
not  easily  moved  from  their  existing  ways,  slow  to  accommo- 
date their  methods  of  cultivation  to  new  conditions.  Not 
only  this;  farmers  would  probably  find  a  self-sufficing  agri- 
culture less  profitable.  It  is  doubtful,  for  example,  whether 
a  larger  net  money  yield  to  the  producer  would  be  obtained 
if  the  cotton-planters  of  the  South,  instead  of  allowing  their 
cotton-seed  cake  to  go  to  Europe  or  to  other  parts  of  the  coun- 
try, were  to  use  it  for  their  own  cattle  and  were  to  turn  their 
attention  to  dairying  and  meat  production  to  that  extent. 
If  the  supply  of  potash  or  indeed  of  other  fertilizer  were  to 
be  permanently  cut  off,  a  readjustment  in  this  direction  would 
be  inevitable ;  but  it  would  be  by  no  means  necessarily  profit- 
able. 

The  confidence  which  the  Germans  exhibited  when  talk- 
ing about  their  potash  was  in  keeping  with  the  self-deception 
which  did  so  much  to  plunge  them  into  false  moves  in  every 
direction,  economic  as  well  as  diplomatic  and  military.  Per- 
haps their  attitude  was  no  more  than  braggadocio  —  not  so 
much  self-deception  as  an  attempt  to  deceive  others.  Their 
potash  is  highly  acceptable  under  present  agricultural  prac- 
tices ;  but  it  is  by  no  means  indispensable.     Should  they  shut 


Tariff  Problems  After  the  War  207 

it  off  from  the  United  States  and  other  countries,  agriculture 
would  gradually  adjust  itself  to  new  conditions  based  upon 
a  different  cultivation  and  in  part  upon  the  cost  of  recovering 
by-product  potash  from  various  industries.  Meanwhile  the 
search  for  other  underground  deposits,  already  initiated  the 
world  over,  would  be  prosecuted  the  more  eagerly,  with  a 
strong  probability  that,  as  is  commonly  the  case  with  ma- 
terials thought  to  be  unique,  competitive  sources  of  supply 
will  be  discovered.  Indeed,  similar  deposits  are  already  re- 
ported to  have  been  found  in  Russia,  Spain  and  Abyssinia. 
Most  of  all,  the  recovery  of  Alsace  by  France  opens  the  one 
natural  source  of  supply  which  is  known  to  be  comparable  to 
that  of  Germany.  The  Alsatian  beds  are  large  in  quantity 
and  excellent  in  quality.  Opened  and  developed  by  the  Ger- 
mans themselves  shortly  before  the  war,  they  constituted  at 
its  close  the  one  effective  competitor  to  the  German  kartell. 
The  sort  of  economic  warfare  and  would-be  strangulation 
implied  in  the  quest  for  control  of  essential  materials  and 
"  key  industries  "  is  to  my  mind  abhorrent.  It  is  not  to  be 
thought  of  as  part  of  a  peace  that  shall  really  terminate  the 
great  war.  But  if  it  must  be  faced  as  among  the  possibilities 
of  an  inconclusive  settlement,  the  United  States  is  in  a 
stronger  position  to  let  it  go  on  than  any  other  country.  So 
far  as  concerns  potash,  which  illustrates  best  our  own  inade- 
quacies and  needs,  we  may  be  composed.  After  the  war,  we 
shall  probably  be  quite  willing  to  admit  it  free  of  duty,  as  we 
did  before  the  war.  If  the  Germans  should  be  so  foolish  as 
to  prohibit  its  export  to  us  —  a  most  unlikely  contingency  in 
the  final  settlement  —  we  should  quietly  accept  the  situation, 
readjust  our  own  affairs  accordingly,  and,  if  there  must  be 
economic  war,  resort  to  retaliation  more  effective  than  any- 
possible  thrust  directed  against  ourselves. 


208  Free  Trade,  the  Tariff  and  Reciprocity 


III. NON-ESSENTIAL    AETICLES.       THE    TARIFF    CONTROVERSY 

In  the  third  class,  that  of  non-essentials,  belong  a  number 
of  articles  which  in  pre-war  times  were  imported  from  En- 
rope,  and  after  the  peace  probably  would  continue  to  be  im- 
ported under  the  existing  scale  of  duties  —  those  of  the  tariff 
act  of  1913.  Such  are  the  more  expensive  grades  of  woven 
textiles  —  woolens,  cottons,  silks,  linens ;  the  finer  grades  of 
cotton  yarns ;  embroideries  and  laces ;  a  good  deal  of  porcelain 
and  chinaware,  and  a  few  (not  many)  kinds  of  glassware; 
toys  from  Germany ;  brushes  for  toilet  use ;  cotton  and  leather 
gloves  for  women ;  notions,  buttons,  and  so  on  through  a  long 
list.  Many  are  clearly  articles  of  luxury ;  others  are  dispen- 
sable conveniences.  Some  have  come  to  be  made  in  this  coun- 
try during  the  period  of  disjointed  foreign  trade,  but  not  a 
few  have  continued  to  be  imported  through  it  all. 

Still  other  things  may  be  put  in  the  same  class,  namely, 
those  which,  though  perhaps  deemed  to  be  essential,  need 
cause  no  concern  because  their  domestic  production  can  be 
undertaken  or  expanded  in  a  short  period  of  time.  Labora- 
tory glassware,  for  example,  was  formerly  obtained  almost 
exclusively  by  importation,  and  chiefly  from  Germany ;  a  large 
proportion  of  the  imports  was  admitted  free  of  duty  because 
used  by  educational  establishments.  Almost  all  the  forms 
and  shapes  are  now  made  within  the  country,  of  excellent 
quality.  But  they  are  not  sold  at  as  low  a  price  as  that  of 
former  imports;  and  it  is  possible,  even  probable,  that  after 
the  war  the  same  disparity  in  price  will  remain,  and  imports 
will  be  resumed.  Being  usually  of  special  shape,  made  in 
small  lots  of  any  one  pattern  and  with  much  hand-labor,  they 
are  produced  more  cheaply  in  countries  where  wages  are 
lower  and  where  special  skill  of  the  needed  sort  can  be  had  at 
a  moderate  rate.  On  the  other  hand,  the  increase  of  supply 
in  this  country  took  place  very  quickly  under  war  conditions, 
and  doubtless  would  t^kf  place  again  under  similar  conditions 


Tariff  Problems  After  the  War  209 

in  the  future.  The  case  is  much  the  same  with  optical  glass 
and  spectacle  glass.  It  is  quite  feasible  to  make  these  within 
our  own  borders ;  but  under  the  normal  conditions  of  foreign 
trade  thej  are  obtained  more  cheaply  by  importation,  and  for 
the  same  fundamental  reason  —  in  the  main  they  are  prod- 
ucts of  handicraft  labor.  Surgical  instruments,  too,  came 
mainly  from  Germany  before  the  war ;  they  too,  like  muni- 
tions of  war,  have  been  turned  out  by  domestic  producers  in 
large  quantities  in  response  to  a  sudden  demand. 

As  regards  all  these  articles,  whether  non-essential  or  pro- 
ducible at  home  on  short  notice,  quite  a  different  problem 
arises,  and  quite  a  different  train  of  reasoning  must  be  fol- 
lowed. The  protective  controversy  pure  and  simple  must  be 
faced.  The  thoroughgoing  protectionist  view  is  that  the  pre- 
vious importation  of  any  commodities  which  could  have  been 
made  at  home  was  always  bad,  and  that  the  stimulation  of 
domestic  production,  fortuitous  though  it  may  have  been,  was 
in  itself  good.  From  this  point  of  view,  the  dependence  upon 
foreign  supply  had  always  been  a  cause  of  economic  loss ;  the 
interruption  of  foreign  supply  because  of  the  war  served  only 
to  bring  out  clearly  the  economic  disadvantage  of  the  situa- 
tion. And  from  this  point  of  view,  too,  the  resulting  incon- 
venience and  distress  were  a  blessing  in  disguise.  We  have 
been  compelled  to  face  squarely  a  serious  situation.  The 
country  should  be  independent  and  self-sustaining  always  and 
in  every  possible  direction,  not  merely  on  political  and  mili- 
tary grounds,  but  on  purely  economic  grounds.  The  same 
trend  of  opinion  will  appear  in  all  the  countries  which  have 
had  a  protective  policy;  they  will  have  to  consider  whether 
protection  is  to  be  maintained,  extended,  or  mitigated.  IN'bt 
only  in  the  United  States,  but  in  other  countries,  those  who 
believe  that  the  substitution  of  domestic  production  for  im- 
ports brings  in  itself  unfailing  gain,  will  seek  support  for 
their  contentions  from  the  war  experiences;  and  everywhere 
they  will  call  for  higher  tariff  rates. 


210  Free  Trade,  the  Tariff  and  Reciprocity 

And,  as  I  have  already  intimated  when  speaking  of  the 
military  commodities,  there  will  be  some  confusion  of  thought 
between  this  frank  and  uncompromising  protectionism  on  the 
one  hand,  and  political  and  military  preparedness  on  the 
other.  Many  persons  will  be  eager  to  make  their  country 
self-sufficing,  independent,  safe;  they  will  be  averse  to  for- 
eign supply  on  grounds  partly  patriotic,  in  part  sometimes 
selfish.  They  will  believe  it  a  conclusive  proof  of  national 
gain  that  a  thing  is  made  at  home  instead  of  being  brought 
from  abroad ;  they  will  hold  the  foreign  purchase  specially 
damaging  if  made  from  a  present  rival,  and  ominous  of  dis- 
aster if  made  from  a  former  enemy.  If  they  are  themselves 
producers  of  articles  affected  by  foreign  competition,  they  will 
not  be  loath  to  fan  international  jealousy  and  commercial 
strife.  On  every  ground  —  political,  military,  economic,  sen- 
timental —  they  will  argue  that  all  things  should  be  made  at 
home  that  can  possibly  be  made  at  home,  and  most  insistently 
will  urge  that  every  newly  stimulated  industry  should  be 
safeguarded  by  ample  tariff  protection. 

The  free-trader,  upon  the  other  hand,  will  maintain  that  on 
strictly  economic  grounds,  and  quite  apart  from  any  ques- 
tions of  political  expediency  or  international  sentiment,  the 
matter  should  be  treated  as  simply  involving  a  balance  be- 
tween gain  and  loss.  He  will  argue  that  the  continued  im- 
portation of  a  commodity  in  times  of  peace  is  in  itself  a  sign 
not  of  loss  but  of  gain.  Imported  goods  are  paid  for,  not 
through  a  losing  trade  in  which  we  part  with  so  much  money, 
but  in  exchange  for  exported  goods ;  and  they  are  obtained 
presumably  on  better  terms  when  got  in  exchange  for  the  ex- 
ports than  if  they  were  produced  at  home.  True,  war  brings 
a  temporary  loss  —  rude  interruption  and  sudden  cessation 
of  supplies,  improvised  substitutes,  higher  prices,  domestic 
production  under  forced  and  perhaps  wasteful  conditions. 
The  sudden  transfer  of  labor  and  capital  to  new  industries 
takes  place  with  a  loss  of  efficiency  and  with  much  waste;  the 


Tariff  Problems  After  the  War  211 

succeeding  readjustment,  if  imports  are  resumed  after  the 
war,  again  entails  loss  and  waste.  Here,  and  here  only  — 
in  the  wastes  of  sudden  changes  —  is  the  offset  to  the  presum- 
able gain  from  free  international  trade.  In  the  long  run,  a 
country  does  not  lose  by  free  imports,  but  gains. 

An  analogy,  from  the  free-trader's  point  of  view,  is  found 
in  the  interruption  of  traffic  on  a  railway  or  street  railway 
during  a  strike  —  something  which  is  often  talked  of  as  in- 
dustrial warfare.  During  the  interruption  of  traffic,  when 
the  existing  facilities  are  unavailable,  there  is  resort  to  sub- 
stitutes less  efficient  and  more  expensive.  Jitneys  and  ex- 
press-wagons replace  street-cars.  But  such  losses,  possible 
and  real,  are  more  than  offset  by  the  continuing  benefits  which 
improved  methods  of  transportation  bring  in  ordinary  times. 
No  one  would  propose  to  dispense  with  railways  or  street  rail- 
ways because  their  services  may  be  interrupted  by  civil  com- 
motion. To  be  sure,  if  such  commotion  had  to  be  reckoned 
with  as  part  of  the  ordinary  course  of  events,  we  might  be 
skeptical  of  the  expediency  of  relying  upon  means  of  com- 
munication likely  to  become  frequently  and  repeatedly  inop- 
erative. And  so  with  regard  to  war  and  international  trade : 
our  attitude  is  influenced  profoundly  by  our  expectation  of 
the  future  of  war  and  peace  between  nations. 

Between  these  extremes  there  are  various  shades  of  opinion. 
There  is  the  moderate  free-trader,  who  has  long  shed  any  no- 
tions about  natural  rights  to  free  trade,  and  has  also  discarded 
the  belief  that  the  cure  for  war  can  be  found  in  universal 
free  trade.  Such  a  person,  too,  is  likely  to  admit  freely  the 
possibility  of  gain  from  protection  under  some  conditions  — 
say,  those  of  protection  of  young  industries.  He  must  be 
impressed  also  by  the  portentous  changes  now  brewing  in 
the  international  order.  The  world  is  different  from  what 
he  wished  and  perhaps  fancied.  Not  only  is  defense  more 
important  than  opulence,  to  use  Adam  Smith's  oft-quoted 
phrase,  but  opulence  itself  is  threatened  by  the  universal 


212  Free  Trade,  the  Tariff  and  Reciprocity 

crash.  How  far  we  must  reshape  all  our  ideals  and  policies 
must  depend  upon  the  eventual  outcome  —  whether  the  world 
is  to  be  readjusted  to  a  permanent  peace  or  to  everlasting 
struggle.  But  the  dream  of  universal  free  and  peaceful  ex- 
change of  goods  has  had  a  rude  shock.  The  strictly  economic 
arguments  for  protection  usually  admitted  by  the  moderate 
free-trader  —  admitted  by  him  to  apply  only  under  excep- 
tional conditions  —  are  reenforced  by  the  hard  facts  of  inter- 
national conflict,  of  national  jealousy,  insecure  interchange  of 
goods,  cutthroat  competition.  Such  a  person  would  still  re- 
sist, from  intellectual  conviction,  the  extreme  policy  of  the 
uncompromising  protectionist.  But  he  would  hold  aloof  also 
from  the  attitude  of  the  uncompromising  Cobdenite. 

Still  another  shade  of  opinion  is  that  of  the  ^'  reasonable  " 
protectionists.  These  maintain  a  faith  in  protection,  but 
would  not  carry  it  too  far.  'No  doubt  the  term  "  reasonable  '^ 
is  question-begging.  The  critic  inquires  at  once  what  is 
meant  by  reasonable,  and  is  apt  to  get  only  the  equally  am- 
biguous answer  that  it  means,  not  too  much.  But  at  all 
events  a  protectionist  of  this  type,  though  desirous  of  main- 
taining some  dam  against  foreign  competition,  would  repudi- 
ate the  Chinese-wall  suggestion.  He  looks  for  the  eventual 
development  and  independence  of  domestic  industries,  some- 
what after  the  fashion  of  the  free-trader  who  admits  the 
young  industries  argument;  yet  he  would  not  sacrifice  any 
domestic  industry  once  established,  even  though  it  continued 
to  demand  and  need  a  considerable  degree  of  protection  indefi- 
nitely and  forever.  He  is  likely  to  be  in  favor  of  what  is 
called  the  equalization  of  the  conditions  of  production.  Yet 
he  would  not  equalize  everything,  and  is  disposed  to  accede  to 
the  continuance  of  imports  where  they  would  be  kept  out  only 
by  duties  at  very  high  rates. 

Which  of  these  principles  shall  prevail,  and  which  shall 
dominate  the  policy  of  the  country  during  the  generation  fol- 
lowing the  war,  depends  largely  on  political  developments  in 


Tariff  Problems  After  the  War  213 

the  United  States.  What  party  will  win  in  the  elections  of 
1920?  The  embers  of  the  controversy  on  protection,  buried 
for  a  while  during  the  political  truce  which  was  maintained 
through  the  war,  have  been  stirred  once  more.  The  old  argu- 
ments have  come  forward,  and  the  old  issue  will  have  to  be 
faced  again.  There  is  not  likely  to  be  a  clear-cut  issue  be- 
tween protection  and  free  trade.  But  there  will  be  one  on 
the  direction  which  the  country's  tariff  policy  shall  take. 
Shall  we  move  toward  higher  duties,  stringent  provision 
against  foreign  competition,  watchful  aid  to  every  industry 
that  has  been  stimulated  by  the  war,  building  up  of  every  one 
not  absolutely  impracticable  because  of  climatic  or  physical 
obstacles  ?  Or  shall  the  trend  be  toward  an  acceptance  of 
foreign  competition  as  healthy,  in  the  main  beneficial,  not  to 
be  jealously  excluded ;  toward  sharp  scrutiny  of  the  claims 
and  profits  of  protected  industries,  and  vigilant  care  for  the 
consumer  ?     The  march  of  events  must  be  awaited. 

This  conclusion  —  which  states  a  question,  not  an  answer 
—  is  not  a  satisfactory  outcome  of  a  discussion  of  reconstruc- 
tion problems.  Yet  the  plain  facts  of  the  situation  must  be 
faced.  No  one  can  predict  with  assurance  the  political  fu- 
ture, and  no  one  can  now  lay  do^vn  the  lines  of  a  policy  for 
tariff  reconstruction.  A  period  of  controversy,  partisan  de- 
bate, uncertainty  in  legislation,  is  inevitable.  It  is  possible, 
and  certainly  much  to  be  desired,  that  some  matters  not  neces- 
sarily involved  in  the  general  debate  may  be  settled  on  non- 
partisan lines ;  such  as  the  methods  of  provision  for  military 
commodities,  and  perhaps  the  tariff  for  specially  situated  in- 
dustries like  the  manufacture  of  dyestuffs.  But  it  remains  to 
be  seen  what  will  be  done  even  on  matters  such  as  these ;  and 
on  the  wider  questions  of  industrial  policy,  we  must  simply 
wait  and  see  what  the  future  will  bring. 

Further,  much  must  depend  upon  the  kind  of  peace  with 
which  the  great  war  ends.  Is  it  to  be  a  peace  of  victory  and 
conquest,  or  a  peace  of  understanding  ?     A  sullen  truce,  or  a 


214  Free  Trade,  the  Tariff  and  Reciprocity 

whole-liearted  settlement  ?  Will  it  include  commercial  peace, 
or  give  play  for  continued  commercial  war?  There  will  be 
strong  pressure  for  the  tightening  of  national  bonds,  for  mov- 
ing toward  the  goal  of  self-sufficiency,  for  more  rigorous  pro- 
tection. A  peace  which  is  in  the  nature  of  a  truce  will  make 
this  pressure  stronger.  A  peace  of  understanding  will 
strengthen  the  hands  of  those  who  welcome  the  development 
of  foreign  trade  and  look  to  it,  not  indeed  as  the  panacea  of 
peace,  but  as  the  natural  and  welcome  concomitant  of  peace. 


IV. THE    TARIFF    COMMISSION    AND    THE    TARIFF 

It  does^ot  follow  from  all  this  that  nothing  at  all  can  be 
done.  It  may  not  be  possible  —  in  my  judgment  it  is  not 
possible  —  to  lay  down  now  a  policy  of  tariff  reconstruction. 
But  we  can  make  preparation  for  the  intelligent  carrying  out 
of  whatever  policy  the  country  shall  finally  adopt.  Precisely 
this  sort  of  preparation  the  United  States  Tariff  Commission 
is  undertaking  to  make. 

Hitherto  in  the  consideration  of  tariff  problems  trust- 
worthy and  accurate  ^information  has  often  been  painfully 
lacking.  The  ^c^amittees  of  Congress  have  been  fairly 
swamped  by  conflicting  statements,  on  matters  pertinent  and 
not  pertinent.  They  have  heard  unending  testimony  on  both 
sides.  They  have  found  it  beyond  the  limits  of  physical  pos- 
sibility to  deliberate  and  discriminate,  to  separate  the  wheat 
from  the  chaff,  to  ascertain  what  were  the  unquestionable 
facts,  still  more  to  ascertain  which  facts  were  significant. 
Complete  information  on  the  contested  questions  has  almost 
invariably  proved  difficult  to  obtain.  Sometimes,  it  must 
frankly  be  confessed,  information  really  complete  may  be 
quite  impossible  to  obtain.  No  tariff  commission  can  pretend 
to  be  a  perfect  and  inexhaustible  encyclopedia  of  information. 
And  yet  it  may  conceivably  perform  functions  of  a  somewhat 
encyclopedic  sort.     Given  time,  organization,  foresight,  and 


Tariff  Problems  After  the  War  215 

the  way  can  be  made  ready  for  prompt  and  intelligent  action. 
The  existing  commission  has  already  begun  the  preparation 
of  a  catalogue  of  tariff  information,  and  has  put  in  charge  of 
it  a  competent  and  trained  statistician,  already  long  ex- 
perienced in  the  work  of  the  Census  Bureau.  If  time  is 
given,  and  the  work  of  the  commission  proves  as  permanent 
as  Congress  has  planned  it  to  be,  this  catalogue  will  become  a 
handy  source  of  reference  for  pertinent  information  on  the 
several  phases  of  the  tariff  question.  The  design  is  to  have 
on  hand  in  it,  in  compact  and  simple  form,  all  available  data 
on  the  growth,  development,  and  location  of  industries  af- 
fected by  the  tariff,  on  the  extent  of  domestic  production  and 
of  imports,  and  on  the  conditions  of  competition  between 
domestic  and  foreign  products.  To  gather  information  of 
this  sort  and  to  present  it  in  usable  form  is  far  from  an  easy 
task.  Like  any  far-reaching  scheme  of  investigation,  it  can- 
not be  carried  through  suddenly  or  quickly.  But  given  time, 
the  commission  means  to  have,  and  to  keep  continuously  up  to 
date,  a  body  of  information  that  will  be  of  important  service 
in  the  determination  of  tariff  policies.  This  much  can  be 
accomplished  and  surely  is  worth  accomplishing. 

l^ot  a  little  has  been  said  in  discussion  of  the  tariff  situa- 
tion in  general  and  of  the  Tariff  Commission  in  particular 
about  the  desirability  of  a  scientific  policy.  That  teiin 
should  be  used  with  caution.  In  the  field  of  political  and 
social  inquiry  we  have  not  reached  that  stage  of  scientific 
certainty  which  has  been  reached  in  many  branches  of  natural 
science.  The  principles  of  economics  can  not  be  laid  down 
in  such  terms  and  with  such  certainty  as  to  enable  us  to  formu- 
late commercial  policies  which  rest  upon  settled  foundations. 
But  the  term  "  scientific  "  may  be  used  in  a  different  sense 
from  that  in  which  it  implies  established  principles  and  in- 
dubitable truths.  In  that  other  sense,  it  means  simply  that 
we  shall  proceed  with  care  and  method;  that  we  shall  be 
accurate,    painstaking,    discriminating,    shall    refrain    from 


216  Free  Trade,  the  Tariff  and  Reciprocity 

guess,  rumor,  exaggeration,  from  vague  and  untested  general 
statements.  We  proceed  in  a  scientific  way  if  we  gather  all 
the  information  we  can,  sift  it  with  care,  present  it  clearly, 
apply  it  intelligently.  In  this  sense  the  operations  of  the 
Tariff  Commission  may  fairly  be  expected  to  have  a  scientific 
character  and  prepare  the  way  for  a  scientific  treatment  of 
tariff  problems. 

And  in  this  sense  we  can  prepare  for  tariff  reconstruction. 
The  tas^  of  the  Tariff  Commission  is  not  to  take  tariff  ques- 
tions out  of  the  hands  of  Congress,  or  to  remove  them  from 
the  realm  of  statesmanship.  The  determination  of  public 
policy  in  this  direction,  as  in  every  other,  must  rest  in  the 
first  instance  with  the  legislature  and  ultimately  with  the 
people.  E^obody,  however  expert,  can  settle,  still  less  dic- 
tate, the  position  which  the  country  shall  take  on  controverted 
political  and  industrial  questions.  All  that  any  administra- 
tive or  investigating  body  can  do  is  to  contribute  toward  dis- 
criminating and  intelligent  discussion  and  action. 


INDEX 


Agricultural    machinery    exported, 

72. 
"  Agrar-staat,"  13. 
Aldrich,  136. 

American  Economist,  35,  36. 
Andrew,  88  n. 
Australia,    prices    and    wages,    83, 

84. 

Balance  of  trade,  97,  98;  between 
U.  S.  and  Canada,  98;  with 
South  America,  99. 

Bastable,  85  n. 

Beet  sugar,  144. 

Brazil,  reciprocity  arrangement 
with,  112,  116;  effects  of  a  duty 
on  Brazil  coffee,   127,   128. 

Cairnes,  85  n.,  89. 

California,  prices  and  wages,  83, 
84. 

Canada,  reciprocity  relations.  111; 
balance  of  trade  with  U.  S.,  98, 

Chemical  industry  in  Germany,  92. 

Civil  War  in  United  States,  conse- 
quences of,  25,  31. 

Cobden,  29. 

Commercial  treaties,  of  1860  be- 
tween France  and  England,  1, 
124;  of  Germany  in  1892,  125. 

Conference  committee  on  tariff,  its 
power,  184. 

Copper,  exports  from  U.  S.,  50,  63. 

Cost  of  production  and  the  tariff, 
Ch.  7  passim;  equalization  of, 
135. 

Cotton  manufacture,  growth  in  the 
South,  21. 

Cuba,  reprocity  treaty  with  U.  S., 
111. 

217 


Curtiss,  34. 

Discriminating  duties  in  favor  of 
American  goods.  111. 

Domestic  commodities  and  their 
prices,  74. 

Domestic  service,  80. 

Drawbacks  and  export  bounties, 
115. 

Dye  stuffs  in  relation  to  explo- 
sives, 200;  general  conditions  of 
industry,  201. 

Dumping,  10,  108,  110. 

Edgeworth,  85  n. 

Efficiency  and  effectiveness  distin- 
guished, 63,  101. 

England,  industrial  growth,  23,  25. 

Essential  commodities,  in  relation 
to  war  problems,  202. 

Export  bounties,  on  sugar,  11;  in 
general  bad,  104;  in  relation  to 
drawbacks,   115. 

Export  prices,  lower  than  domes- 
tic, discussed,  107. 

Export  transportation  rates,  105. 

France,  tariff  policy,  1,  2,  19. 

German  economists  on  protection, 
26. 

Germany,  industrial  growth  since 
1870,  20,  24;  competition  with 
Great  Britain  and  relative 
wages,  53 ;  chemical  industry, 
92. 

Gold,  flow  between  countries,  45, 
96. 

Glassware  for  laboratory  use,  208. 

Gloves,  cotton,  duty  of  1909,  168. 


218 


Index 


Hawaii,  effects  of  reciprocity  with, 

122. 
House  rents  in  U.  S.,  75. 
Howard,    ( Harvard )    Independent , 

35,  41. 

Immigrants  and  cheap  labor,  9, 
68,  92,  93. 

India  and  Great  Britain,  wages 
and  international  competition, 
51. 

Ingersoll,  R.  G.,  42. 

International  payments,  mechan- 
ism of,  96. 

Iron  and  steel,  exports  from  U.  S., 
51. 

Japan  and  Great  Britain,  wages 
and  international  competition, 
51. 

Jokers,  178,  185. 

Key  industries,  201,  207. 
Knives,  table  and  pocket,  65. 

Lincoln  on  the  tariff,  Ch.  2  passim. 
London    as    international    clearing 
house,  96,  99. 

Malthus,  15. 

Marshall,  150,  157. 

Matteson,  35  n.,  41. 

McCleary,  38. 

Mechanics'  wages,  67. 

Mercantilist  view,  3,  96. 

Military  commodities  and  the  tar- 
iff, 196. 

Military  prowess,  industrial  influ- 
ence of,  24,  95. 

Mill,  J.  S.,  1,  83. 

Money,  flow  of  between  countries, 
45,  96. 

Monopoly  and  dumping,  12,  108. 

Monopoly  and  protection,  143. 

Nationalist  feeling,  strengthens 
protection,  29. 


Noncompeting  groups,  89. 
iSippers  and  pliers,  duty  of  1909, 

170. 
Noyes,  88  n. 

Potash,  203. 

Protection,   reaction   toward  after 

1879,  2. 

Razors,  duty  of  1909,  172. 
Railroads,  low  rates  in  U.  S.,  62, 

78;    rates   for  export  discussed, 

105,  107. 
Reciprocity,  Ch.  6  passim;  special 

form   under   tariff   act   of    1890, 

120. 
Retail  prices  in  U.  S.  and  Europe, 

79. 
Ricardo,  1,  28,  84  n. 

"  Scientific "     solution     of     tariff 

problems,  180. 
Senior,  84  n. 
Sewing  machines,  usually  exported 

from  U.  S.,  a  few  imported,  65. 
Shaw,  L.  M.,  37. 

Smith,  Adam,  5,  23,  28,  148,  211. 
Social  ladder  in  Great  Britain,  23. 
South    America,    reciprocity    with, 

130;    balance  of   trade   with   U. 

S.,  99. 
Standard  Oil,  export  prices,  108. 
Stanton,  38,  40. 
Steel     corporation,     export     sales, 

13  n.,  166,  167. 
Steel,    structural,    duty    of    1909, 

164. 
Surgical  instruments,  209. 
Surplus  and  foreign  market,  5. 

Taft,  197. 

Tariff  board  of  1910,  149,  182. 
Tariff  commission  of  1882,  187. 
Tariff    commission    of    1916,    149, 

180,  214;  proposal  for  discussed, 

Ch.  10. 


Index 


219 


Wages  and  the  tariflF,  Ch.  3, 
passim;  6,  139. 

Wages,  why  high  in  U.  S.,  55; 
why  high  in  terms  of  money, 
71,  81. 

Weils,  D.  A.,  18. 

Wool,  cost  of,  150;  in  territories, 
152;  in  Ohio,  153;  should  be 
free  of  duty,  155;  how  assess 
duty  if  any,  156. 

Woolen  goods,  compensating  du- 
ties on,  159;  cost  of  production 


in   U.    S.   high,    160;    machinery 

imported,    169. 
Wheat    in    relation    to   wages   and 

prices,  72. 
White,  Horace,  40  n. 

Young    industries,    proteotion    to, 
16. 

Venezuela  coffee,  122,  126. 

Zollverein,  20. 


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